Please note: The Auto-enrolment sub-board is now closed. If you have a question around pensions, please post in the Pensions, Annuities and Retirement Planning board.

Opting out of NHS Pension

2456

Comments

  • shortcrust
    shortcrust Posts: 2,697
    Combo Breaker First Post First Anniversary Newshound!
    Forumite
    dunstonh wrote: »
    Shame this thread wasnt in the main pensions section where it belonged. It would have got more responses if it was. In the very remote chance there is actually a board guide/moderator seeing this, could they move it out of this ghost section into the pensions main section.

    Also a shame that the OP never returned to the site after making the post. Last Activity: 14-03-2018 11:45 PM. So, probably all responses unread and wasted our time.

    It's odd isn't it! Sometimes I think people just like telling strangers about (for example) being mortgage free at 33, debt free, retiring at 50/55.

    Is the OP saying in their last sentence that they're going to kill themselves when they're no longer able to enjoy life - at about 70 to 80ish?! I'll mention this to my 77 year old Dad when I see him tomorrow. Hint hint Dad!
  • andy001
    andy001 Posts: 119
    First Anniversary First Post
    Forumite
    Very informative post
    I'm not a Financial advisor.
    Please seek independent financial advice.
  • atush
    atush Posts: 18,719
    Name Dropper First Anniversary First Post
    Forumite
    For anyone but the lazy OP who cant be bothered to read the answers
    If I was to stay, then the best case scenario would be for the pensions rules to remain the same, I would have a very good pension by the time I am 70 but by then it would be too late to enjoy it.

    This is just silly.

    What you do, if you dont want to work to 70 (or 65 etc) is to save outside the NHS pension as well. In a PP or Sipp or S&Sisas or both. these can bridge the gap to taking your Nhs pension early/reduced.
  • Thank you for all the responses, it has been very informative though very accusatory at times thus I didn't want to fuel any fire. I do value all your input.

    Things have progressed since my original post, I am now moving to a new job outside the NHS with double the pay so the original question is no longer valid. I will, however, use the ideas proposed to help me make better-informed decisions.

    Many thanks.
  • csgohan4
    csgohan4 Posts: 10,587
    First Anniversary First Post Name Dropper Photogenic
    Forumite
    On the note for high earners e.g 100k +, you will hit your Annual allowance very soon and opting opt of the NHS may reduce this pension growth, but you will have a tapered allowance to contend with which ultimately means more tax


    Other's have opted in and out on alternate years, but this will impact on your pension when you retire due to reduced contributions, so a double edged sword effectively. If you can afford to, don't opt out and take the AA hit, but unfortunately your tax bills will be higher, it isn't uncommon to get 50k plus on top of your usual income tax bills.




    Anyone thinking of opting out needs to take IFA advice from those who are familiar with the NHS pension scheme


    Using SIPPS will encounter the same issues with AA and tapered allowance. Only difference is you choose how your pension grows when you invest
    "It is prudent when shopping for something important, not to limit yourself to Pound land/Estate Agents"

    G_M/ Bowlhead99 RIP
  • You have been given some pretty poor advice here. It's far more complicated than the basic arithmetic that most are doing, and frankly I'm a little disappointed given the supposed financially savvy demographic on this forum...People are just adding your 12.5% to the governments 14% and assuming you'd need to save 26.5%...but in reality you would need to save much less as you can invest that money. The money in the NHS pension isn't invested - you know what you will be paid from day 1 (theoretically).

    I would opt out.

    I'm assuming you're a doctor? I've run a quick spreadsheet for your career from the age of 22 to 50, using a 6 year training period post FY2 and then 29y as a consultant. Retiring at 58 you are entitled to £31.6k pa pension for the rest of the life. If we assume that you live until you're 90, the implied IRR (internal rate of return) on an inflation adjusted basis is just 3.0%.

    This means that if you are confident that you can achieve a real (inflation adjusted) return in the market of over 3.0% then you are better off opting out. You can realistically / conservatively hope for 4-6% real return in the markets over long periods.

    Additional benefits of opting out, some of which you highlight:

    - You aren't penalised if you decide to retire a year earlier than planned
    - Your money is liquid (can be a double edged sword...)
    - You aren't reliant on the government and its ever increasing deficit and an NHS pension that's almost certain to change between now and when you retire
    - You aren't beholden to the questionable reported inflation rates...

    It's worth noting that if you stay in until 68 (your current projected retirement age) your pension would be worth £77k pa and your required break even opt-out return would be 3.5%.

    Good luck.
  • JoeCrystal wrote: »
    DO NOT OPT OUT. The cost of opting out will be vastly more than the money you would saved. You mentioned that you will be paying 12.5% so that put you in at least £47,846.00. I will round it up to £48,000 for simple working. Let's say you are a new starter at £48,000 and you contribute into NHS system for 38 years, you would be paying £500 per month gross.

    Assuming that pay rise and cost of living is the same, after 38 years, you would get an index-linked annual pension of £33,600 at 68 (A very simplified working tbh). To get the same thing in private pension scheme, one would need to contribute £2,239 per month or 55% of your salary for next 38 years. And let not get into the ill health retirement and death in service benefit. Compare it to my case for example, I contributed 25% of my salary or £540 per month and according to the pension forecast in 28 years @ 60 and very lucky to put together various pension pot of £60k so far, I would be seeing a level annuity of £6,680 per year so an index-linked annuity would be something like £3,890 assuming that I was seeing a good annual return of 5%.

    In other words, you are paying peanuts for a massive benefit from it.

    These maths are so very wrong
  • HappyHarry
    HappyHarry Posts: 1,554
    First Anniversary Name Dropper First Post
    Forumite
    You have been given some pretty poor advice here. It's far more complicated than the basic arithmetic that most are doing, and frankly I'm a little disappointed given the supposed financially savvy demographic on this forum...People are just adding your 12.5% to the governments 14% and assuming you'd need to save 26.5%...but in reality you would need to save much less as you can invest that money. The money in the NHS pension isn't invested - you know what you will be paid from day 1 (theoretically).

    I would opt out.

    I'm assuming you're a doctor? I've run a quick spreadsheet for your career from the age of 22 to 50, using a 6 year training period post FY2 and then 29y as a consultant. Retiring at 58 you are entitled to £31.6k pa pension for the rest of the life. If we assume that you live until you're 90, the implied IRR (internal rate of return) on an inflation adjusted basis is just 3.0%.

    This means that if you are confident that you can achieve a real (inflation adjusted) return in the market of over 3.0% then you are better off opting out. You can realistically / conservatively hope for 4-6% real return in the markets over long periods.

    Additional benefits of opting out, some of which you highlight:

    - You aren't penalised if you decide to retire a year earlier than planned
    - Your money is liquid (can be a double edged sword...)
    - You aren't reliant on the government and its ever increasing deficit and an NHS pension that's almost certain to change between now and when you retire
    - You aren't beholden to the questionable reported inflation rates...

    It's worth noting that if you stay in until 68 (your current projected retirement age) your pension would be worth £77k pa and your required break even opt-out return would be 3.5%.

    Good luck.

    Sorry, but I think you're very wrong.

    I've also done a few sums on the back of napkin.

    To get a £31,600 per annum index linked annuity with a 5 year guarantee and 50% spouses pension would, at age 58, currently cost around £1,500,000.

    To achieve a pot of around £1,500,000 (increased by inflation) over 36 years years would mean that if the individual obtained a rate of return equal to inflation + 6%, they would need to add £1,020 per month to that pot.

    That's a very large proportion of income.

    OP, I too think you would be mad to opt out.
    I am an Independent Financial Adviser. Any comments I make here are intended for information / discussion only. Nothing I post here should be construed as advice. If you are looking for individual financial advice, please contact a local Independent Financial Adviser.
  • HappyHarry wrote: »
    Sorry, but I think you're very wrong.

    I've also done a few sums on the back of napkin.

    To get a £31,600 per annum index linked annuity with a 5 year guarantee and 50% spouses pension would, at age 58, currently cost around £1,500,000.

    To achieve a pot of around £1,500,000 (increased by inflation) over 36 years years would mean that if the individual obtained a rate of return equal to inflation + 6%, they would need to add £1,020 per month to that pot.

    That's a very large proportion of income.

    OP, I too think you would be mad to opt out.

    That's a terrible annuity rate.

    Think logically. If you and your spouse exceed current life expectancy dramatically and live to 90, that's 32 years x 31.6k = 1,011k. What are you paying the extra 500k for? That's a hell of a premium for a 5 year inflation guarantee when you can get the same thing in the market very easily.

    The implied withdrawal rate of that annuity is 2%, and this leaves your portfolio fully depleted when you die. Conventional retirement wisdom discusses a 3-4% safe withdrawal rate, meaning your pot is very likely to still be fully intact when you die. Using 3.5% SWR and 31.6k gives 902k required pot size.

    I believe at 6% real return this would require around a 500pm saving, far less than the NHS would take (beyond the first 8-10y as a junior doctor). And unlike an annuity or your NHS pension you'd likely leave behind at least 900k for your family or charity.
  • That's a terrible annuity rate.

    You're just trolling, aren't you?

    Post you quoted gave 2.11% for a 58 yr old with joint life, 5 year guarantee.

    https://www.hl.co.uk/retirement/annuities/best-buy-rates gives 2.25% for a 55 yr old, joint life, no guarantee:

    GsVstnN.png

    I suggest you either find somewhere else to troll, or at least be a little less obvious about it if you're going to stick around here.
    Conjugating the verb 'to be":
    -o I am humble -o You are attention seeking -o She is Nadine Dorries
This discussion has been closed.
Meet your Ambassadors

Categories

  • All Categories
  • 342.5K Banking & Borrowing
  • 249.9K Reduce Debt & Boost Income
  • 449.4K Spending & Discounts
  • 234.6K Work, Benefits & Business
  • 607.1K Mortgages, Homes & Bills
  • 172.8K Life & Family
  • 247.4K Travel & Transport
  • 1.5M Hobbies & Leisure
  • 15.8K Discuss & Feedback
  • 15.1K Coronavirus Support Boards