NHS pensions explained

nigelbb

saucer said:

nigelbb said:

andy001 said:

Imagine small 'virtual pot' of £555 increased by (1.5%+cpi) each year and compounded till you retire!
You build similar virtual pots each year and these all are combined at retirement. (Increased after retirement as per CPI)
Death in service, survivor's pension (half the pension) and tax benefits when adding EE contributions are few other benefits too..
Downsides- it's virtual pot and controlled by UK Government and controlled by 'politicians'.. They can change rules many times till you retire and like Irish public sector-can reduce pension to 'help' balance the wider economy.. 
As virtual pot- once you die and survivor dies- pot is gne in Government's custody unlike 'DC' pension where it becomes part of family ..and not Government after death

NO!!!  You do not build up a virtual pot because there is no pot of any kind. You build up a pension of 1/54 of your pensionable salary payable every every year from retirement until death. If your salary is £54K your pension will be an index linked £1000/year. Average lifespan at retirement age is over 20 years so the pensioner will receive over £20K in pension over their lifetime. It's effectively deferred salary paid by instalment in retirement.

Well there may not be an actual ‘pot’ of money but it might help the op imagine what is happening to their money. It is like a pot that never empties!

To summarise, you get 1/54th of the salary for every year you work, e.g. if you are paid £27000 in one year this would give you £500 pension for that year, and if you were paid £54000 in another year (unlikely unless you are very senior staff) you would earn £1000 pension for that year. The pension for each of these years rises by inflation until you retire, when they are all added together and paid just like your salary until you die! 

In the above example if you only worked for the NHS for two years and were paid these salaries you would be entitled to a pension of £1500 [£500 +£1000) (not allowing for inflation) a year, from the day you retire (assumed to be your state retirement age). Add in inflation to each year’s contribution and your pension will, over your career (hopefully more than 2 years), accumulate a very useful and totally secure payment for the rest of your life. 

NO! Describing a pot of money for the NHS pension is not only wrong but very confusing when many other worker have a DC pension that really does comprise a pot of money. The NHS pension is exactly as I described it is index-linked deferred salary paid in retirement.