It appears many Consultants and senior NHS staff are opting out of the NHS Pension which means they are leaving the scheme. This in turn means they lose future benefits.
The main reason for this is the increase in tax bills many are facing as a result of a change to the pension Annual Allowance rules.
There’s also another group of members who appear to be opting out at an increasing rate. Younger NHS staff who don’t feel they can afford the contribution levels they need to make and/or don’t understand the benefits.
Opting out could be a terrible mistake.
Opting out of the NHS Pension – Reasons against
#1 – You need some form of additional income in retirement
If you don’t make your own provision for retirement then you may struggle financially to ever give up work.
Whilst working for 35 years will probably mean you qualify for the State pension, at around £8,500 per year this is probably not going to cut it.
#2 – Significant employer contributions
It’s not just you that pays into your NHS Pension scheme. Your employer makes a significant contribution too which is set by law.
This means your future income is likely to be much higher than other types of private defined benefit pensions.
#3 – NHS pension is a guaranteed income for life
When you reach retirement age the annual pension income you’ve built up inside the NHS Pension will pay out for the rest of your life, no matter how long you live.
It’s backed by government so pretty much as safe as you can get.
#4 – A retirement income that keeps up with inflation
Your NHS Pension retirement income will keep up with the rise in cost of living. This means, in most years, your retirement income will increase.
#5 – No investment risk when building your NHS Pension ‘pot’
The income due in retirement and the way it is calculated are all written into the NHS Pension rules. You don’t have to worry about how the stock market is performing or how the economy is doing.
#6 – Reduced income for your spouse
As well as being paid a guaranteed income for life in retirement. On your death your spouse could also be entitled to a reduced income for the rest of their life.
#7 – Lump sum death benefits
As well as your spouse receiving a reduced income in retirement from your NHS Pension they could also benefit from a large tax free lump sum payout.
#8 – You can build up additional NHS Pension
The NHS Pension offers Additional Voluntary Contributions (AVCs) that pay into a separate pot, that allows you to increase your retirement income.
Really handy if you are awarded bonuses or receive an inheritance.
#9 – Look at your net position when assessing the tax implications
Yes, many Consultants are hitting the Lifetime and Annual Allowance when it comes to their NHS Pension but just because you are paying more in taxes than before doesn’t mean you’re not still better off overall.
#10 – A private personal pension cannot give you the same security of benefits
With a personal defined contribution pension you will not have a guaranteed income in retirement. Your money will be invested and therefore at risk from stock market falls, reducing the value of your pension.
What to do next if you’re still thinking of opting out of the NHS pension
Seek advice from a professional Financial Adviser who is experienced in dealing with people like you. It’s as simple as that.
No matter what you read in the press or which colleague you talk to, this is complex stuff and everyone’s situation is unique.
It is vital you don’t make the mistake of giving up valuable benefits (that you can’t get back) without knowing where you stand first.
If you would like help understanding your position and whether you should be opting out of the NHS Pension then why not take advantage of our free 15 minute call. You can speak to a Chartered Financial Planner who will listen to your situation, give you an outline of what you need to consider and guide you in the right direction.
Stock market linked investments and any income from them, can fall as well as rise and is not guaranteed. Any figures quoted are for illustrative purposes and should not be taken as a forecast or guarantee. Past performance should not be seen as an indication of future returns and clients may get back less than they have invested.