Comparing NHS pension

sunnyoctopus

I am currently working for the NHS, and every year I get £450 at 67. I am considering going contracting instead, which has many benefits for me and my family, especially in terms of flexibility and saving in childcare costs. However I wont get access to a company or the NHS pension.
I am trying to work out how much my NHS pension is worth – ie working out how much I would need to put into a private stakeholder pension to get £450 at age 67. The pension I am considering is stakeholder pension offered by Cavendish, due to its low fees and simplicity.
All the calculators I can find online assume that I will keep paying into the pension until 67 – which isn’t very helpful when I am trying to make a comparison.
[FONT=&quot]Could anyone help? I am wondering whether £500 per month would give an equivalent. I am 38. I guess what I am looking for is a ‘lump sum’ into a pension calculator. [/FONT]

232607

A very difficult 1 to calculate but we often see on here transfer values of around x 30 being the point where people think about taking the transfer.
Is we use that as a guide & say 30 x £450 = £13.5K, may be what you need to contribute.
I sure it’s not that simple & others will be along to offer their views
But I don’t think £500 will cut it.
I’d be surprised if anything less than £1000 matches it.

xylophone

Had you considered the other benefits that the scheme confers?

For example death in service, spouse pension, dependent child pension, ill health pension etc?

Had you considered the value of the employer contribution?

Had you considered the index linking?

https://www.thisismoney.co.uk/money/howmoneyworks/article-3177112/How-money-need-save-pension.html

sunnyoctopus

[FONT=&quot]Thank you both - £1,000 a month is a lot more than I thought Id have to contribute. [/FONT]
[FONT=&quot] [/FONT]
[FONT=&quot]There are lots of pros and cons to working for the NHS vs contracting; I have tried to consider what is of value to me at the moment. Of course there are also things like holiday pay, death in service etc. But its really the actual pension that is of value to me, and Im trying to work out whether I could afford to pay into a pension and get something comparable.[/FONT]
[FONT=&quot] [/FONT]
[FONT=&quot]If I were to pay £13,000 as a lump sum, could this give me an index linked or inflation proof £450 at age 67, do you think?
[/FONT]

hugheskevi

You could look at some scenarios in the NHS Added Pension calculator. This can tell you how much NHS pension you can purchase with a lump sum.

The discount rate is CPI+2.4%, which is effectively the rate of return on the lump sum contribution after charges that you would need to match within a personal pension to equal the Added Pension.

BobQ

I would look at the situation differently. On an average salary you will be paying about 10% in employee contributions and your employer about 20% (you can look up the exact figures). This means that your pension benefits (including pension) are worth about 30% of salary.

So the question to ask is whether as a contractor you will make 30% more than your current salary?

Of course that does not allow for holiday and sickpay or the implications of needing to retire for medical reasons.

Your £450 will go up by CPI each year.

BobQ

sunnyoctopus wrote: »

[FONT=&quot]Thank you both - £1,000 a month is a lot more than I thought Id have to contribute. [/FONT]
[FONT=&quot] [/FONT]
[FONT=&quot]There are lots of pros and cons to working for the NHS vs contracting; I have tried to consider what is of value to me at the moment. Of course there are also things like holiday pay, death in service etc. But its really the actual pension that is of value to me, and Im trying to work out whether I could afford to pay into a pension and get something comparable.[/FONT]
[FONT=&quot] [/FONT]
[FONT=&quot]If I were to pay £13,000 as a lump sum, could this give me an index linked or inflation proof £450 at age 67, do you think?
[/FONT]

You mean £450 a year or a month? Possibly you could buy an annuity to get that income annually but I doubt it would be index linked.

As has been observed if you can pay in extra money to the NHS Scheme you can get added pension.

The advantage of the NHS pension is that it will be index linked for the rest of your life. If you want that from an annuity you will get significantly less income. You need to be careful to compare like with like.

232607

As has been alluded to previously something like a 1/3rd of your salary may be what’s needed.
I was in DB scheme where the employer stated the input to the scheme on my pay slip. This was 32.5% of my salary of which only 5% was my contribution.
People massively underestimate the cost of funding a DB pension.
You shouldn’t & should factor this in to the decision you make.

SonOf

I am trying to work out how much my NHS pension is wort

It's worth around 30% of your salary. Highly valuable.

i.e. you would have to pay in around 30% of your salary to get a similar benefit.

If you invest cautiously, you would need to pay in more.

The pension I am considering is stakeholder pension offered by Cavendish, due to its low fees and simplicity.

Stakeholder pensions are a niche option nowadays. They are no longer the cheapest option. Especially with larger contributions. Ther are hardly any providers left that offer them

Tom99

hugheskevi wrote: »

You could look at some scenarios in the NHS Added Pension calculator. This can tell you how much NHS pension you can purchase with a lump sum.

The discount rate is CPI+2.4%, which is effectively the rate of return on the lump sum contribution after charges that you would need to match within a personal pension to equal the Added Pension.

For a 38yr old this calculator says a lump sum of £4,920 will buy £500pa from age 67 so about £410 per month.
That cost will go up each year so if you we age 48 then the lump sum cost of £500pa would be £6,280.
The factors of x 30 mentioned above is more applicable if the pension is to be paid immediately whereas your investment has another 29yrs to grow before it needs to start paying out.
However if you use this calculator to work out the cost when you are very close to retirement age it seems to use a factor of about x20 which would be an incredibly cheap deal compared to buying that extra pension in the open market.

marlot

If the OP remains working in the NHS, the already accrued pension goes up by CPI + 1.5% !!!!! That's a huge incentive to stay in. If the OP leaves, the annual revaluation drops to CPI.

https://www.nhsbsa.nhs.uk/sites/default/files/2017-05/2015%20Members%20Guide%20%28V7%29%2005.2017.pdf

Is there any way of doing some form of half-and-half? Reduce the NHS hours, and supplement income with some contracting?

This table shows the great deal that police, NHS and teachers have on revaluation
https://www.parliament.uk/business/publications/written-questions-answers-statements/written-statement/Commons/2018-02-21/HCWS474/