NHS Pension Confusion

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Adamc
Adamc Posts: 440 Forumite
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in Pensions, annuities & retirement planning
Hi all

I'm relatively young guy working in the NHS and I am in the latest pension scheme. The only problem is I don't understand it.

Could anyone advise me on how it works?
Whether it's worth considering other pension schemes?

I'm ashamed to say, I'm very clueless regarding the £300-400 that is being deducted from my income each month.

Thanks for any advice. :money:
«1345678

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  • stoozie1
    stoozie1 Posts: 656 Forumite
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    It's a great scheme.

    You accrue 1/54th of your pensionable earnings each year (increased above inflation) as an annual income in retirement.
    Save 12 k in 2018 challenge member #79
    Target 2018: 24k Jan 2018- £560 April £2670
  • Tom99
    Tom99 Posts: 5,371 Forumite
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    You would probably have to pay 20%+ of your income to get an equivalant pension elsewhere so if you are paying say 9.3% it is a very good deal.
  • crv1963
    crv1963 Posts: 1,372 Forumite
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    Adamc wrote: »
    Hi all

    I'm relatively young guy working in the NHS and I am in the latest pension scheme. The only problem is I don't understand it.

    Could anyone advise me on how it works?
    Whether it's worth considering other pension schemes?

    I'm ashamed to say, I'm very clueless regarding the £300-400 that is being deducted from my income each month.

    Thanks for any advice. :money:


    You are in a great scheme, under written by the government, don't be persuaded to leave it! As said earlier you would pay a lot more into a private scheme to get the same benefits.


    You can ring your Pensions Officer and they will run through the benefits (but not offer you any advice), you can increase your retirement income with AVCs, ISAs or other savings. Basically in your scheme any salary sacrifice affects your pension so be careful of lease car scheme payments!


    You can check on-line expected pension.
    CRV1963- Light bulb moment Sept 15- Planning the great escape- aka retirement!
  • justme111
    justme111 Posts: 3,508 Forumite
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    edited 6 January 2018 at 8:14PM
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    stoozie1 wrote: »
    It's a great scheme.

    You accrue 1/54th of your pensionable earnings each year (increased above inflation) as an annual income in retirement.

    ..every year. so if you earn lets say 3O k each year and pay 3k in contributions you are buying with it 3Ok÷54= £555 paid to you every year of your retirement.
    If you invested that money and the average growth would been 3% after inflation it would become 1O k after 4O years of investment. You could take the same £555 from it ( roughly 5%( but if investment does not grow at a quite optimistic rate of 5% after inflation you would deplete the pot in a couple dozens of years. you may think it does not matter because you would be dead by then but if you cam get the same without sweating and risking then why not. Besides in 1O years time you will not have 4O years left for investment to grow so the outcome of self investment would be worse
    The word "dilemma" comes from Greek where "di" means two and "lemma" means premise. Refers usually to difficult choice between two undesirable options.
    Often people seem to use this word mistakenly where "quandary" would fit better.
  • Adamc
    Adamc Posts: 440 Forumite
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    edited 6 January 2018 at 10:04PM
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    So let's say I accrue £555 per year + the 3K I contributed = £3555 per year ... am I right in thinking that will attract compound interest for the 40 years I will be in the scheme? Many thanks for helping everyone �
  • hugheskevi
    hugheskevi Posts: 3,860 Forumite
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    So let's say I accrue £555 per year + the 3K I contributed = £3555 per year ... am I right in thinking that will attract compound interest for the 40 years I will be in the scheme? Many thanks for helping everyone �
    No, you are not thinking about this in the right way.

    Forget about your employee contribution, that is just what it costs you to be in the scheme and is not directly related to what you get out.

    In return for your contribution, each financial year you build up an annual pension. What you build up is based on your salary, and you build up a annual pension of 1/54 of your salary. So, if your salary was £30,000 you build up annual pension payable from your State Pension age of £556 per year of work.

    That £556 then increases by the rate of CPI+1.5% whilst you remain in active service. So, for example, if CPI is 2% in a particular year the £556 gets increased by 3.5% to £575. If you leave service, it just goes up by CPI each year. Every year it gets increased (unless CPI is zero or negative).

    The following year you build up another piece of annual pension, in the same way as above, which gets increases in the same way.

    When you retire you add up all the revalued pension from each year of accrual to get your total pension.

    You have a very easy decision to remain in the scheme. Your considerations should be about whether you want to contribute more to a pension, either within the scheme (eg ERRBO or Added Pension or AVC - see scheme website for more details on these) or externally (eg to a personal pension or SIPP).
  • Silvertabby
    Silvertabby Posts: 9,023 Forumite
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    So let's say I accrue £555 per year + the 3K I contributed = £3555 per year ... am I right in thinking that will attract compound interest for the 40 years I will be in the scheme? Many thanks for helping everyone �

    Er - no. Forget your pension contibutions - they have no bearing on your eventual pension - they (and your employer's contributions) have just been set at this level in order to finance the pension fund.

    Using justme's example of £30K per year salary, one year's pension accrual will give you £30K / 54 = annual pension of £555.55 plus revaluation.

    So in return for your one year of pension contributions (£3k) you will receive an index linked annual pension of over £555 for the rest of your life. If you live for the average 20 years post retirement, that's a return of at least £11K - actually a lot more with index linking - which is a pretty good deal.
  • Stubod
    Stubod Posts: 2,169 Forumite
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    ....as all the above, it really is a no brainer, stay in the scheme and never leave it until you retire....you won't get anything better, and its index linked and guaranteed....
    .."It's everybody's fault but mine...."
  • andy001
    andy001 Posts: 119 Forumite
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    This is great information
    Would it be true for those affected by tapered allowance as well? E.g. someone who earns 210k and has only 10K tax relief or lower amount than 210k but above 150k
    I wonder if the high earners in nhs scheme are the losers?!:money::money:
    I'm not a Financial advisor.
    Please seek independent financial advice.
  • andy001
    andy001 Posts: 119 Forumite
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    To add to above (sorry couldn’t find edit button) . Apologies . New member!
    The high earners will reach LTA quickly
    They don’t need to keep putting money in pension after reaching LTA.
    Hence they will lose more as won’t be able to add money even in private pensions after reaching LTA
    I'm not a Financial advisor.
    Please seek independent financial advice.
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