To opt out of NHS pension to make childcare more affordable?

[pensionoptout]

Am I going to regret this?? I've temporarily opted out of my NHS pension contributions to make our childcare expenses more affordable. It will probably be for around 18 months or so I think, hopefully less. Has anyone done this? Is it a bad financial decision?

@pensionoptout

To be honest I've got a bit lost now 🙈 Defined benefit etc... it means nothing to me. I really don't know anything about pensions! Perhaps I should learn. I feel a bit naive and stupid now.

A defined benefit pension is calculated based of a formula of years in the scheme and final salary/amount accrued per year. You can work it yourself and know what you should get. Pensions are benefits.

A defined contribution pension is you know what you need to contribute/pay in each month. But what you get at the end of it, when you claim your pension, isn't known for sure. You're relying on the investment to make you enough money.

I wouldn’t opt out of a pension unless I was starving each month. As you’re not keep going

@babyjellyfish

I have tried to explain that the NHS is defined benefit scheme, what she pays in does not determine what she gets out.

That's not the point I was making though.

She is still losing employer contributions, because to get your £X amount of pension per year of pensionable service, the scheme invests both the employee contributions and the employer contributions. The employer contributions are part of the OP's benefits package. The OP (along with most people in the public sector) gets paid a lower salary than she would get in an equivalent job in the private sector with less generous employer contributions. So by not contributing to her pension and losing the employer contributions, she's effectively losing part of her salary.

There were people on this thread who were saying that by OP opting out she was losing the ‘free pension’ which comes from an employers contribution which is not true. Yes the employers contributions can make up part of the package, for example if you were to transfer to private sector you should look at what your employer would pay in contributions

I did this OP, not ideal but it was better than getting more in debt to afford £1500 a month childcare. If it’s the way to keep your head above water just go back in ASAP

@Polkadotties

But the years you pay in do including an employee and employer element - neither are paid if you opt out. So if you think of it only in terms of what you save each month you don’t pay in that is misleading as it would make you think you are ‘only’ missing out on 18 months of employee contributions. When in fact you are missing out on 1.5/40th’s of your entire pension.

And for this discussion Op doesn’t need to worry about the ins and outs of how the pension works. She just needs to know she would have to be insane or quite literally starving to making opting out make sense!

@babyjellyfish I could be wrong but I think it's worse than that, depending on which scheme they are in. The employer doesn't contribute so the OP accrues a part of a year if the OP opts out in some schemes. In effect, if they opt out then they lose that year's accrual - 1/54th in the 2015 career average scheme. Possibly not if the OP is younger but if they opt out for five years then they might lose the final salary-ness of the previous schemes they might have been in, depending on when they joined.

If they opt out then I think they might lose the death in service and ill-health elements too.

Could be wrong though. Haven't looked at the nurses schemes for a while since the PNs asked a similar question.

3/80ths would have made more sense there!

You are right Zilla1 she would lose death in service benefit too

[quote Abigail12345654321]@Polkadotties

But the years you pay in do including an employee and employer element - neither are paid if you opt out. So if you think of it only in terms of what you save each month you don’t pay in that is misleading as it would make you think you are ‘only’ missing out on 18 months of employee contributions. When in fact you are missing out on 1.5/40th’s of your entire pension.[/quote]
Yes I know that. I have never told OP to look at what she pays in contributions.
I work for a public sector pension scheme. I am fully aware of how CARE, final salary, accrual rates, contributions etc work

@Abigail12345654321 could be wrong but the 40ths is the accrual rate for the 2015 nurses scheme, I think it's 54ths. You are correct in principle though. 40ths was the rather for the Civil Service scheme though don't know what there's is for the newer career-average schemes, post-austerity.

It's a very bad decision, the pension is the most tax efficient way of saving and Compound Interest is your friend, the longer its saved/invested the better the return. Make every other financial cut before this.

It looks like MP's pension still has a 1/40th accrual rate unless they choose a 1/50th or 1/60th to reduce their contributions. All in it together.

Wow what a can of worms this is! I didn't realise the complexity and significance of opting out to be honest. I'm almost 37, for those wondering my age. I'm expecting to be promoted to band 8c by age 45-47 ish, all being well with the direction and rare that my career is expected to progress.

*rate not rare

Very bad idea. Especially as it’s just you who has opted out.

I’m showing my age @Zilla1!

@Polkadotties yes I know - but what she is looking at is how much extra will be in her take home pay if opting out. And many people believe that is quite a small amount in the great scheme of thinks and can’t possibly have a big impact on eventual pension. All the terminology being used is understandably confusing her. It doesn’t actually matter that she understand how the pension works. What matters is that she understand that opting out is very bad both in terms of lost pension, because the benefit is far more than her monthly contribution, but also lost death in service benefits and illness benefits.

@pensionoptout

Wow what a can of worms this is! I didn't realise the complexity and significance of opting out to be honest. I'm almost 37, for those wondering my age. I'm expecting to be promoted to band 8c by age 45-47 ish, all being well with the direction and rare that my career is expected to progress.

I would second what someone said earlier - the nhs is promoting people hand over fist at the moment because they have lost so many staff due to the government trying to force vaccination - so apply for promotions - strike while the iron is hot!! It’s an ill wind and all that.

@Abigail12345654321

I’m showing my age *@Zilla1*!

@Polkadotties yes I know - but what she is looking at is how much extra will be in her take home pay if opting out. And many people believe that is quite a small amount in the great scheme of thinks and can’t possibly have a big impact on eventual pension. All the terminology being used is understandably confusing her. It doesn’t actually matter that she understand how the pension works. What matters is that she understand that opting out is very bad both in terms of lost pension, because the benefit is far more than her monthly contribution, but also lost death in service benefits and illness benefits.

Which I have been saying from my very first post on this thread! The loss of death in service benefits is crucial

@Abigail12345654321 Me too, I had to check.

Cynically, twelve years of austerity involved much of the savings achieved by cutting public sector real-terms earnings, state benefits or , I think, local authority subsidy. Didn't help economic growth much though QE seemed to turbo-charge asset price inflation and concentrate wealth in a few.

You'd be better off getting a bank loan to cover the nursery fees, maybe in your partner's name seeing as you're not married and he's quite keen for you to take the hit to your pension.

Glad that we've helped. And there's a chance that you are in the 2008 scheme, given your age, as well so even more important not to opt out

I did this in 2019 when on maternity leave from the NHS. I think you are in the same position as me in that you know its bad decision financially but if thats what you have to do temporarily to get by then thats what you have to do.
I would say though that you need to be realky strict in rejoining as soon as you can because its easy to get used to the extra money... rejoin and start making your contributions as soon as you can

Don't do this.

1. you're not married
2. you'd lose death in service pay outs
3. it will be very hard to go back in and "lose" money each month.
4. Pension is an absolute basic cost and it's utter madness to opt out.
5. child care cost are shared, I would only agree to do this if your partner, who need to be husband, agreed to do the same.

Say the worst happens, you split up with your partner and/or you die. You've leave your children in a very difficult situation. Don't do it

@pensionoptout

It would be good if there was an option to pay a bit less in temporarily but it's a fixed percentage of my gross pay that they take, there no option to adjust it. It's all or nothing. Such a shame as I could probably afford to pay a smaller contribution.

as HR, but we have an option to pay a reduced amount. 6% instead of 9 I think. Only for a max period.