NHS Pension

dunstonh

Silvertabby said:

GrubbyGirl_2 said:

tmoneysauce said:

Dazed_and_C0nfused said:

tmoneysauce said:

I’ve been working for the NHS for 2 years and 6 months. I opted out of the pension scheme 2 years into it as it was too costly for me. A couple months later I heard that I could be refunded the pensions so I sent off the form only to discover that I was rejected due to working over 2 years for the NHS. I had sent the form 2 years and 3 months into service. Is there any way that I could try to argue against this, or should I just cut my losses?

Trust me you will be more than happy to have that 2+ years worth of pension when you reach retirement age.

A refund of pension contributions (from which non refundable tax would have been deducted reducing what you actually got back) from a public sector pension scheme is virtually always a terrible choice financially.

Hopefully you will soon realise you are essentially taking a huge pay cut by opting out, not to mention the extra tax you will almost certainly now have to pay 😳.

The sooner you opt back in the better.

Thank you. However this is temporary, the pay difference with the extra tax actually has helped me and I also have a private pension that I save money aside for

I can't begin to tell you how troubled I am by that statement.  A private pension will give you a fraction of the benefits of your NHS pension.  I am an NHS pensioner and my benefits are so good I am able to save half of my pension each month and at the moment I don't even get my state pension.  PLEASE, if you have to cut any spending cut the private pension and rejoin the NHS scheme.  You'll be so grateful you did when you're closer to retirement

This reminds me of the reason why a LGPS member opted out.  He reckoned that the LGPS was a rip off because we were charging him over £100 per month (this was some years ago) when a Stakeholder pension only cost £20 per month.  

I wish you were joking but I have come across that scenario before.

Silvertabby

dunstonh said:

Silvertabby said:

GrubbyGirl_2 said:

tmoneysauce said:

Dazed_and_C0nfused said:

tmoneysauce said:

I’ve been working for the NHS for 2 years and 6 months. I opted out of the pension scheme 2 years into it as it was too costly for me. A couple months later I heard that I could be refunded the pensions so I sent off the form only to discover that I was rejected due to working over 2 years for the NHS. I had sent the form 2 years and 3 months into service. Is there any way that I could try to argue against this, or should I just cut my losses?

Trust me you will be more than happy to have that 2+ years worth of pension when you reach retirement age.

A refund of pension contributions (from which non refundable tax would have been deducted reducing what you actually got back) from a public sector pension scheme is virtually always a terrible choice financially.

Hopefully you will soon realise you are essentially taking a huge pay cut by opting out, not to mention the extra tax you will almost certainly now have to pay 😳.

The sooner you opt back in the better.

Thank you. However this is temporary, the pay difference with the extra tax actually has helped me and I also have a private pension that I save money aside for

I can't begin to tell you how troubled I am by that statement.  A private pension will give you a fraction of the benefits of your NHS pension.  I am an NHS pensioner and my benefits are so good I am able to save half of my pension each month and at the moment I don't even get my state pension.  PLEASE, if you have to cut any spending cut the private pension and rejoin the NHS scheme.  You'll be so grateful you did when you're closer to retirement

This reminds me of the reason why a LGPS member opted out.  He reckoned that the LGPS was a rip off because we were charging him over £100 per month (this was some years ago) when a Stakeholder pension only cost £20 per month.  

I wish you were joking but I have come across that scenario before.

Yes - I've mentioned that one before, from my own list of reasons given for opting out of the LGPS.  Others were:

My husband has a good pension, so I don't need one as well.

It's just another council tax, and if I don't have to pay it I won't.

The money is better off in my pocket than the council's.

Remember that as a LGPS administrator I wasn't allowed/qualified to advise.  Just explain what they would be giving up by opting out.  Sadly, I suspect that many had already 'spent' their extra money before requesting the opt out forms.

GunJack

Silvertabby said:

Yes - I've mentioned that one before, from my own list of reasons given for opting out of the LGPS.  Others were:

My husband has a good pension, so I don't need one as well.

It's just another council tax, and if I don't have to pay it I won't.

The money is better off in my pocket than the council's.

Remember that as a LGPS administrator I wasn't allowed/qualified to advise.  Just explain what they would be giving up by opting out.  Sadly, I suspect that many had already 'spent' their extra money before requesting the opt out forms.

I'm so glad you posted them again, always gives me a good giggle when I read them!!

Universidad

OK, @tmoneysauce, just in case you're not trolling us here I'm going to do some example maths to show how much opting out of the pension scheme could be costing someone. All numbers are based on lots of assumptions, so this is ballpark "this is how it can work out" stuff, rather than an actual prediction. 

Assuming someone is on a salary of 35,000 per year, and that they live to an age of 84 years old.

The NHS pension accrual rate is 1/54. The contribution rate for that salary is 9.8%. I'm going to assume this person doesn't have access to salary sacrifice, although this might vary.

Their monthly contributions are 286 pounds. This is all subject to tax at 20%, which means they could have 229 pounds extra each month in their bank account.

They accrue 648 pounds of annual pension each year, which is 54 pounds of annual pension each month.

They live for 16 years in retirement, which means each month of accrual is worth 864 pounds of inflation protected pension.

That person's extra 229 pounds each month is costing them a real terms 864 in old age - every single month.

It's even worse when you consider that the revaluation rate for active members is CPI + 1.5% - a benefit somone would lose by deferring their pension. 

Assuming this revaluation rate sticks around this could, over a 40 year career, turn 54 pounds into nearly 100 (in real terms!) and at this point somone could easily be losing 10 pounds for every 1 they were taking back today.

And worse still, in practice, as if someone wants to buy an inflation protected annuity with a private pension, it will cost significantly more than this.

jamesd

tmoneysauce, and understandable choice, probably a bad move but maybe not.

Would you have been able to get the IVA in place if you were in the NHS pension? Of did it take greater repayments than were possible as a member?

That's the only case I can think of at the moment where your choice might make you better off overall.

Normally pension contributions are disregarded from money available to pay an IVA. It's worth checking with your IVA manager whether you can rejoin the NHS scheme and take the increase in IVA duration.

tmoneysauce

jamesd said:

tmoneysauce, and understandable choice, probably a bad move but maybe not.

Would you have been able to get the IVA in place if you were in the NHS pension? Of did it take greater repayments than were possible as a member?

That's the only case I can think of at the moment where your choice might make you better off overall.

Normally pension contributions are disregarded from money available to pay an IVA. It's worth checking with your IVA manager whether you can rejoin the NHS scheme and take the increase in IVA duration.

Yes I was and still am in IVA whilst in the pension scheme. I don’t understand why the comments are forcing me to go back to a pension scheme I physically cannot afford right now. I understand the benefits of it and if things were better I would have stayed in it. Financially, it has taken more money from me that I actually need right now 

tmoneysauce

Universidad said:

OK, @tmoneysauce, just in case you're not trolling us here I'm going to do some example maths to show how much opting out of the pension scheme could be costing someone. All numbers are based on lots of assumptions, so this is ballpark "this is how it can work out" stuff, rather than an actual prediction. 

Assuming someone is on a salary of 35,000 per year, and that they live to an age of 84 years old.

The NHS pension accrual rate is 1/54. The contribution rate for that salary is 9.8%. I'm going to assume this person doesn't have access to salary sacrifice, although this might vary.

Their monthly contributions are 286 pounds. This is all subject to tax at 20%, which means they could have 229 pounds extra each month in their bank account.

They accrue 648 pounds of annual pension each year, which is 54 pounds of annual pension each month.

They live for 16 years in retirement, which means each month of accrual is worth 864 pounds of inflation protected pension.

That person's extra 229 pounds each month is costing them a real terms 864 in old age - every single month.

It's even worse when you consider that the revaluation rate for active members is CPI + 1.5% - a benefit somone would lose by deferring their pension. 

Assuming this revaluation rate sticks around this could, over a 40 year career, turn 54 pounds into nearly 100 (in real terms!) and at this point somone could easily be losing 10 pounds for every 1 they were taking back today.

And worse still, in practice, as if someone wants to buy an inflation protected annuity with a private pension, it will cost significantly more than this.

This is not a choice I wish to make, but I have no other option. I’m in in an IVA and currently cannot afford to pay into a NHS pension scheme 

tmoneysauce

dunstonh said:

tmoneysauce said:

QrizB said:

Per the OP's other thread, they're 26 and four years into an IVA dealing with debts they ran up in their early 20s.

While I agree that opting back into the NHS pension is likely to be in their long-term best interests, I can understand how retirement might seem a long way away and immediate needs appear more important.

Yes this is correct. Opting out of pensions temporarily has helped me now with my finances

A better way of wording it is that you have robbed your retirement years to pay it.    

Whilst I can fully understand your sentiment behind it, and debt issues can be very hard on people mentally, opting out should be the absolute last resort option as having a small amount available now will be dwarfed by the amount of money lost in later life.     

 I also have a private pension that I save money aside for

That won't come close to the NHS pension.  You would actually be better clearing the debt quicker with that money and re-joining the NHS pension ASAP.

What was your contribution to the NHS pension as it showed on your payslip?
What is your contribution to the personal pension?

So what would your advice be? Stay in a pension and not have any money for food and other essentials whilst still paying for debt? 

Emmia

tmoneysauce said:

dunstonh said:

tmoneysauce said:

QrizB said:

Per the OP's other thread, they're 26 and four years into an IVA dealing with debts they ran up in their early 20s.

While I agree that opting back into the NHS pension is likely to be in their long-term best interests, I can understand how retirement might seem a long way away and immediate needs appear more important.

Yes this is correct. Opting out of pensions temporarily has helped me now with my finances

A better way of wording it is that you have robbed your retirement years to pay it.    

Whilst I can fully understand your sentiment behind it, and debt issues can be very hard on people mentally, opting out should be the absolute last resort option as having a small amount available now will be dwarfed by the amount of money lost in later life.     

 I also have a private pension that I save money aside for

That won't come close to the NHS pension.  You would actually be better clearing the debt quicker with that money and re-joining the NHS pension ASAP.

What was your contribution to the NHS pension as it showed on your payslip?
What is your contribution to the personal pension?

So what would your advice be? Stay in a pension and not have any money for food and other essentials whilst still paying for debt? 

Google tells me the employer contribution represents 20.6% of your pay, that is a serious chunk of money for your future (that you can't access otherwise) that you're turning down by not being part of the scheme.

If you want to maximise your pension benefits with the contributions you can make and pay the IVA you should stop paying into the private pension, and (ideally) return to the NHS scheme ASAP. 

QrizB

tmoneysauce said:

So what would your advice be? Stay in a pension and not have any money for food and other essentials whilst still paying for debt? 

The IVA should still leave you with money for essentials.

If you post over on the debt free board, you should be able to get advice on how to manage your IVA.

If (as you've implied) you are still paying into a private pension, but have opted out of the NHS one, you should really think about switching those around; pay the NHS contributions but stop the private ones.