2015 Pension Scheme

ClaNix

Hi all,
I have scrolled through previous threads about this but embarrassing i can't make any sense of it. I have dyslexia and am struggling to understand the NHS 2015 pension scheme. I am band 7 and pay 9.8% pension per month which is £361 roughly. That cost me £4332 per year. I was told to divide my yearly salary by 54 which would give me the amount i would be entitled to each year. This came out as £771.00.  So the 771.00 i would get for one year i can save myself by keeping the £361 for roughly two months pay. Then i have 10 months of £361 which is taxable but mine.

If i was to pay in the scheme for ten years basing it on the above figures then i will get back 7710 per year if i retire at 68 and am lucky enough to live for 20 years which i doubt very much 7710 x 20 is 154,200 i would get back over the 20 years which sounds great.
If i put 361.00 a month into my own saving account it will be £43320 in ten years time. If i paid myself the 7710 per year then the money would be gone after 5.5 years.

Is the above correct? it may not be exactly right but roughly. Am i understanding the scheme or not i suppose that is my question.
Sorry if i have confused you as i have confused myself. Happy for the joke to be on me lol

Dazed_and_C0nfused

What you need to remember is that the real cost is more likely to be £3465 as you have not had to pay tax on the net pay pension contributions.

And you pay that £3465 once.  The £771 (or should it really be a bit over £800?) is increased by inflation (CPI +1.5%?) each year and is paid from your scheme normal pension age for the rest of your life. Could easily be 30 years, so even ignoring inflation it could be £20k+ in return for your original £3,465.

It's a pretty hard pension to beat really.

Clueless56

Hi,
I found this little Open University video a few years ago, which explains clearly how a CARE pension works and, in fact, uses the NHS Scheme as the example: https://www.open.edu/openlearn/mod/oucontent/view.php?id=20953&section=3.1  A friend I forwarded it to said they found it really helpful as they didn't understand their pension scheme at all.

LightFlare

Top of B7 is now just over 50k

If you pay in for 27 years and retire at 68, you would get an annual pension of 25k

(numbers used for ease of maths)

You would find it impossible to get anywhere close to that by saving the money instead of paying it into the scheme.

Making it to 68 on the other hand may be a challenge and the penalties for taking your pension early are quite severe in the 2015 scheme (roughly a reduction of 4.5% per year early taken)

Dazed_and_C0nfused

LightFlare said:

Top of B7 is now just over 50k

If you pay in for 27 years and retire at 68, you would get an annual pension of 25k

(numbers used for ease of maths)

You would find it impossible to get anywhere close to that by saving the money instead of paying it into the scheme.

Making it to 68 on the other hand may be a challenge and the penalties for taking your pension early are quite severe in the 2015 scheme (roughly a reduction of 4.5% per year early taken)

The pension is reduced to reflect the fact that you want it to be paid for longer, it's not a penalty.

ClaNix

I am not planning to work until i am 68 and was hoping to retire early. 4.5 per cent is a lot. I wonder if it is still worth sticking with the scheme and still getting more than trying to save the 9.8 per cent myself.

Dazed_and_C0nfused

ClaNix said:

I am not planning to work until i am 68 and was hoping to retire early. 4.5 per cent is a lot. I wonder if it is still worth sticking with the scheme and still getting more than trying to save the 9.8 per cent myself.

Please don't do that.  You will start having to pay more tax and will never ever be able to match the very generous benefits that the NHS pension scheme provides.

Is there a particular aspect of it you are finding it difficult to get to grips with?

Ignoring the State Pension where else could buy secure inflation proofed pension of £771 for less than £3.5k 🤔

MallyGirl

There is also probably some sort of index linking for the NHS pension.
It may be £771 now but by the time you retire your salary would have gone up 10 times so it would be the future salary divided by 54 as the rule of thumb figure for each year of service you have completed. The amount would then continue to increase by some form of CPI/RPI/whatever (probably capped but certainly not static at the starting amount).
The pension may cost you £361 but if you opted out and put that amount in savings you would lose some to tax and NI so less would make it into the savings pot.

Pensions are good things.

Moonwolf

MallyGirl said:

There is also probably some sort of index linking for the NHS pension.
It may be £771 now but by the time you retire your salary would have gone up 10 times so it would be the future salary divided by 54 as the rule of thumb figure for each year of service you have completed. The amount would then continue to increase by some form of CPI/RPI/whatever (probably capped but certainly not static at the starting amount).
The pension may cost you £361 but if you opted out and put that amount in savings you would lose some to tax and NI so less would make it into the savings pot.

Pensions are good things.

Each pot from previous years grows by CPI+1.5% as long as someone is still working for the NHS. This means that next April, all “pots” (ie each annual accrued sum) accrued before April 2023 will grow by 11.6%. The cumulative value of that continuous above inflation increase is huge.

Moonwolf

ClaNix said:

I am not planning to work until i am 68 and was hoping to retire early. 4.5 per cent is a lot. I wonder if it is still worth sticking with the scheme and still getting more than trying to save the 9.8 per cent myself.

Firstly remember that you will also have a state pension. Secondly, there is a very good chance you will another 18-20 years after retirement.

Thirdly, if retiring early is important to you, the way to address it is with extra savings. Although I now work for the NHS I have a DC (defined contribution) pot which I will use as a bridge to my NHS pension.  I built that up before and then while I worked for BT ( their final salary was closed to new joiners when I arrived there).  Even though I paid 20% of my salary and BT matched 9% I still added less pension value than I would have in the NHS scheme over the same period.

It is such good value and it pains me when people opt out because they think they can do better just by saving and investing, a tiny proportion might but most will be a lot poorer in retirement.

QrizB

ClaNix said:

I am not planning to work until i am 68 and was hoping to retire early. 4.5 per cent is a lot. I wonder if it is still worth sticking with the scheme and still getting more than trying to save the 9.8 per cent myself.

The future you will be ever so grateful if you stay in the scheme. You will never beat the scheme by saving or investing 9.8%.

My employer used to have a defined benefit scheme based on 80ths (not 54ths like yours, so much less generous). When they closed the scheme, they replaced it with a defined contribution scheme (in effect, an investment account). I calculated I'd need to put about 30% of my salary into the new scheme to match the pension I was previously getting in the old one.