Nhs pension

Penfold2018

Hi I am 44 and planning to leave the NHS. I have been in the NHS for 20 years and have 1995 scheme and 2015 scheme membership. Despite phoning advice line I am totally confused about the implications of leaving! Any tips or further questions to ask? I think there is something to understand about the final lump sum scheme linked to the 95 pension scheme…..
TIA

xylophone

You will be leaving your pension deferred ?

https://www.nhsbsa.nhs.uk/member-hub/applying-your-pension

https://www.nhsbsa.nhs.uk/sites/default/files/2021-07/Retirement Guide (V25) - 07.2021.pdf

Retirement lump sums

If you're in the 1995 Section or you opted to move to the 2008 Section, you'll automatically receive a lump sum when you retire.

If you’re in the 2008 Section or 2015 Scheme, you can ask to take some of your pension as a lump sum.

tacpot12

You will become a deferred member. This means that your pension amount will increase in line with the inflationary increases granted on NHS pensions. 

Flugelhorn

@xylophone is right the only difference in the lump sums for 95 and 15 was that the lump sum was automatic 3x pension in 95, in 15 you didn't have to take it  / could take less etc 

saucer

Flugelhorn said:

@xylophone is right the only difference in the lump sums for 95 and 15 was that the lump sum was automatic 3x pension in 95, in 15 you didn't have to take it  / could take less etc 

It might be worth noting that any lump sum with the 2015 pension costs a lot of the ongoing pension, equivalent to a £1 of annual pension for every £12 of lump sum. This means that when you take any lump sum from the 2015 part of the pension you are effectively losing out after 12 years.

AKAGraham

Not quite as simple as that because the lump sum is tax free whilst the pension is taxed at the persons nominal rate. However over the twelve years the pension will increase annually and the lump sum money can also be invested to try and make more money or to buy something the person really wants or needs, a new car, a once in a life time holiday etc. For instance following early retirement I used my lump sum to pay off my mortgage and saved 9 years of repayment.

jimi_man

mgreenhouse05 said:

Not quite as simple as that because the lump sum is tax free whilst the pension is taxed at the persons nominal rate. However over the twelve years the pension will increase annually and the lump sum money can also be invested to try and make more money or to buy something the person really wants or needs, a new car, a once in a life time holiday etc. For instance following early retirement I used my lump sum to pay off my mortgage and saved 9 years of repayment.

No it isn't as simple as that, I agree. Taking a lump sum is an individual choice and for some people who would like a reasonable cash sum that they've never had before, then why not. Mathematically it's unlikely to be a sound choice but that is not always the main driver and why should it be.

In the case of the tax, it doesn't make a huge amount of difference. With a 12:1 commutation factor, that's effectively an interest rate of 8.3% if you left your money in the pension. (£12,000 buys you an extra £1000 a year pension if you reverse the sum). Even after tax it's still 6.6%. In paying off a mortgage rate someone is swapping 6.6% for around 1 to 2% (mortgage rate), but while that's clearly a poor deal, that doesn't take into account the peace of mind of not having a mortgage. 

That's why it's not just about money. In your case, you obviously wanted the peace of mind that paying the mortgage off gave you irrespective of how much it cost in the long term and there is nothing wrong with that.

TARDIS

And as if that wasn’t complicated enough… due to the McCloud judgment at retirement you will have the choice of 1995 or 2015 scheme for the remedy period (April 2015-2022).

https://www.unison.org.uk/content/uploads/2021/03/McCloud-FAQs-1.docx

Tips: make sure you save a copy of your TRS before you go and check it’s correct as it’s easier to sort whilst you’re an employee. I’ve heard that you have to contact them to request an annual statement as the ESR online platform is only accessible to current employees so worth a quick email each year if you want to keep an eye on it.

The meaningful money podcast did an overview of the nhs pension last week you may find useful.

ScoobyZ

TARDIS said:

And as if that wasn’t complicated enough… due to the McCloud judgment at retirement you will have the choice of 1995 or 2015 scheme for the remedy period (April 2015-2022).

https://www.unison.org.uk/content/uploads/2021/03/McCloud-FAQs-1.docx

Tips: make sure you save a copy of your TRS before you go and check it’s correct as it’s easier to sort whilst you’re an employee. I’ve heard that you have to contact them to request an annual statement as the ESR online platform is only accessible to current employees so worth a quick email each year if you want to keep an eye on it.

The meaningful money podcast did an overview of the nhs pension last week you may find useful.

Hi, you can also access your TRS via the government portal.