Nhs pension seeking advice

monkey1000

Hi all
Im seeking some advice. I have been in the Nhs pension scheme for 28 years, and am 52. My Nhs pension NPA is 55. I intend to work until I’m 63. Am I wiser to take my pension and lump sum at 55, knowing I will pay 40% tax on it as I will still be earning my Nhs salary, or do I wait until I’m 63 and leave my pension where it is. Thank you in advance

GrubbyGirl_2

I would say leave it where it is or you'll lose the money your employer pays into your pension which is 20..68% of your pensionable salary, that's free money you won't get for 8 years.  So for example if you're a band 6 on around £35k that's £7,200 x 8 years that's £58k worth of pension contributions you won't get.  Plus you'll be paying tax on all of your income instead of your income minus your pension contributions.  And don't forget your salary will go up in the next 8 years so your defined benefits will also go up

The NHS pension is the best you can get and you should maximise it.  Have the long term view.

monkey1000

Sorry - I should have said that this is on the 1995 pension scheme that I don’t pay into anymore, as we now have to pay into the 2015 scheme, the npa for which is 67. I can still work and pay into that pension even if I take the 1995 one

GrubbyGirl_2

monkey1000 said:

Sorry - I should have said that this is on the 1995 pension scheme that I don’t pay into anymore, as we now have to pay into the 2015 scheme, the npa for which is 67. I can still work and pay into that pension even if I take the 1995 one

I would still leave it alone personally.  It's final salary and your salary will continue to go up over the next 8 years, you may also get a promotion.  I went from an 8c to a 9 in my last 5 years.  Also remember there is also a death in service benefit associated with your pension.  At the end of the day only you can decide

infj

Are you in mental health? Because only those with special status can take any NHS Pension at 55 - otherwise it's at least 60 or lose a lot in value.
Rules are also about to change in Nov 2023 to give the same flexibility on 1995 pensions as there is on 2008/2015.
Have you had the recent letter from NHS Pensions stating all this?
One of the things that will change then, is that 1995 members will have option to do "drawdown" the same as 2008/2015 members.
This is NOT the same as drawdown you will see on WWW relating to private pensions - it's a very specific NHS Pensions option.

But in theory at least, at 55/60 you could drop your working hours and drawdown a portion of your NHS pension to cover the loss of salary. There are lots of ifs, buts and maybes on this and you need to do the research to understand the implications but it's an option to think about.

Flugelhorn

Difficult - always understood that if you didn't take 1995 at the NPA and stopped paying then you didn't get any more money out of it by delaying taking it. For assorted reasons I ended up taking mine a month late and can't get that month's pension back

spaniel101

If you are insistent on working until you are 63, your 1995 scheme calculation will simply continue to increase in line with your 'best of the last 3 years' up to the point of putting your 1995 pension into payment (Final Salary Link 1995/2015).

In addition, 2015 (CARE) scheme accrues at 1/54 of pensionable pay, + annual revaluation of 1.5% + inflation indexing on each year of accrued value, all the while you are in 'active paying membership'.   Inflation only on each year accrued once you stop paying in (non-active membership / deferred).   Tax is also saved on pension contributions.


Ultimately, the longer you work, the more pension you will have.


Only you can decide when to pull the plug.  

kaMelo

There are a lot of factors to consider here before making a decision. I'm also taking as a given that you have special class status as you mention an NPA of 55

You cannot accrue any more years in the 1995 scheme but your pension is calculated by using best year within the final three so future pay rises will increase the starting amount of your pension. You talk about working until you are 63 so there will be, I would imagine, a significant uplift in salary even without promotions upon which your pension would be calculated. However this has to be countered by the fact that, assuming you drew your 95 pension at 55, even though your lump sum and starting pension would be lower, you would have already received eight years worth of index linked pension benefits by the time  you reached 63. 

To give some idea of figures, assuming you were entitled to a pension of £15,000 so lump sum of £45,000 when you're 55, also assuming index linked rises of 2% per year. If you drew that from 55 by the time you reach 63 you would have already received £176,319. Your pension for that year would be £17,574 so by the time you turned 64 you would have received £193,894 in pension and lump sum payments. If you deferred and only started drawing your 95 pension at 63. With pay rises lets assume your starting pension is now £20,000. At the end of the first year, when you turned 64 you would have received, £80,000 (£60,000 lump sum plus one year pension) 

This leaves you £113,894 down when compared to taking the pension at 55. Also important to note that even though the starting pension may be higher at £20,000 by deferring the original pension taken at 55 has had eight years of increases bringing it up to £17,574. a difference of only £2436 more per year. Having this larger annual pension and again assuming inflationary increases of 2% it would take 34 years before you were better off by having deferring your pension until you were 63.

Even using the example of @GrubbyGirl_2, band 8C to 9 (current entry level figures of £67,064 and £95,135 respectively). With 28 years accrual on the 95 pension scheme and taking the basic lump sum by deferring taking the pension until age 63 on a band 9 salary it would take another 23 years before you are better off financially than if you had drawn a pension aged 55 on a band 8C salary

Of course these are all assumed figures, only you know your actual figures and you'll have to do your own calculations accordingly and they take no account of tax implications. Eight years is also a long time for life events, you have plans now but things may change in that time.

Given all these factors  I'm struggling to see any way in which deferring your 95 pension until age 63 is the better option.


Death in service is of course covered in the 2015 scheme. I honestly don't know whether you can claim a death in service benefit under two schemes simultaneously, effectively two payments, or whether you qualify for just one from one scheme.

GrubbyGirl_2

kaMelo said:

There are a lot of factors to consider here before making a decision. I'm also taking as a given that you have special class status as you mention an NPA of 55

You cannot accrue any more years in the 1995 scheme but your pension is calculated by using best year within the final three so future pay rises will increase the starting amount of your pension. You talk about working until you are 63 so there will be, I would imagine, a significant uplift in salary even without promotions upon which your pension would be calculated. However this has to be countered by the fact that, assuming you drew your 95 pension at 55, even though your lump sum and starting pension would be lower, you would have already received eight years worth of index linked pension benefits by the time  you reached 63. 

To give some idea of figures, assuming you were entitled to a pension of £15,000 so lump sum of £45,000 when you're 55, also assuming index linked rises of 2% per year. If you drew that from 55 by the time you reach 63 you would have already received £176,319. Your pension for that year would be £17,574 so by the time you turned 64 you would have received £193,894 in pension and lump sum payments. If you deferred and only started drawing your 95 pension at 63. With pay rises lets assume your starting pension is now £20,000. At the end of the first year, when you turned 64 you would have received, £80,000 (£60,000 lump sum plus one year pension) 

This leaves you £113,894 down when compared to taking the pension at 55. Also important to note that even though the starting pension may be higher at £20,000 by deferring the original pension taken at 55 has had eight years of increases bringing it up to £17,574. a difference of only £2436 more per year. Having this larger annual pension and again assuming inflationary increases of 2% it would take 34 years before you were better off by having deferring your pension until you were 63.

Even using the example of @GrubbyGirl_2, band 8C to 9 (current entry level figures of £67,064 and £95,135 respectively). With 28 years accrual on the 95 pension scheme and taking the basic lump sum by deferring taking the pension until age 63 on a band 9 salary it would take another 23 years before you are better off financially than if you had drawn a pension aged 55 on a band 8C salary

Of course these are all assumed figures, only you know your actual figures and you'll have to do your own calculations accordingly and they take no account of tax implications. Eight years is also a long time for life events, you have plans now but things may change in that time.

Given all these factors  I'm struggling to see any way in which deferring your 95 pension until age 63 is the better option.


Death in service is of course covered in the 2015 scheme. I honestly don't know whether you can claim a death in service benefit under two schemes simultaneously, effectively two payments, or whether you qualify for just one from one scheme.

The factor you haven't included in your calculations is tax and depending on current grade this could push it into 40%.  You also can't assume 2% inflation for 8 years.  Yes it's high now but predicted to be 2.9% by the end of the year and in 2020 it was only 0.1%, The government is determined to get back to those low number so potentially salaries are more likely to go up more.

kaMelo

I have of course used some assumptions because the exact figures are unknown, they haven't happened yet. Although inflation will naturally fluctuate over time the Government target level of inflation for the Bank of England to achieve is 2%.so consider it reasonable to assume that the BoE will finally get it's act together and achieve around 2% inflation. I also struggle to believe salary increases will consistently and significantly outstrip inflation going forward.

I didn't factor tax into the equation and said as much, without knowing someone's complete financial picture it would be impossible to do so however there are ways to mitigate tax implications, paying salary into a private pension would reduce someone's tax burden down to basic rate for example. Upon retiring at 63 the OP could then draw the private pension in conjunction with their 1995 NHS pension to bridge the gap until 67 when their 2015 pension could be drawn without reduction. 

When doing the calculations of deferring versus taking the pension it absolutely blew my mind, I had no idea that by deferring a pension, even when you have a significantly higher starting pension amount, just how long it takes to catch up and overtake where you are by taking the pension earlier.
I used the example you gave as that's quite a significant jump in salary at £28,000, combined with the OP's accrual of 28 years. Starting level band 8C with 28 years gives a starting pension of £23,472.40 versus starting level band 9 with 28 years gives a starting pension of £33,297.25, nearly £10,000 per year more so a significant amount. But once you factor in inflationary increases the pension already in receipt will have had, this is now at £27,500 so only £6000 per year more. At this point when you offset the pension lump sums and pension sums already received, by deferring you are starting with a deficit of over £170,000 which takes 23 years to recover and be better off financially.
Eight years deferral with a £28,000 salary increase takes 23 years to recover. As I said it blew my mind just how long it takes to recover and be better off even with a large increase in salary in those years you defer. I did the calculations three times to make sure I hadn't made a mistake as I had no idea it would take so long. If inflation above 2% this timescale will reduce, it's it's below 2% then it will increase. 

With all these factors and calculations I came to the conclusion that I don't see any way in which deferring is the better option but I forgot something very important, abatement. Abatement has the most potential to throw a huge spanner in the OP's works. Currently it's suspended until April 2025, in April 2025 there will have been a General Election and no one can say now who will be in Government and what they will do regarding abatement. The only silver lining is that the OP will be 54 and still have time to adjust their plans but if abatement is reintroduced it will most likely throw the OP's plans to retire and return out of the window.

Lowtrawler

This is related to something I have posted on before. Those who have pensions in both the 1995 sections and 2015 sections have been effectively disadvantaged by being unable to take their 1995 pensions at 55/60  and continue to pay into the 2015 scheme as the only increases after these ages are linked to changes in salary which would take an exceptionally long time to recover the lost pension income.

As I understand it, under the recent pension changes, employees are to be given an option to take their 1995 pension at 55/60 and continue to pay into the 2015 scheme. Unless you expect to get a significant promotion, I believe this would invariably be the best option. Can anyone confirm if individuals can take their 1995 scheme pension at 55/60 and continue paying into the 2015 scheme without restrictions or are there special rules?