Nosy NHS pensions question

[Jazz12]

Our friends are doctors. He is a GP and she is a hospital consultant. They are both 45. I always assumed they are on final salary pension. They say rules changed and they aren’t!
Are NHS doctors not on final salary pensions? Is that a thing of past??

Such an odd thing to be nosy about. And given friends of mine are getting huge tax bills on their pensions thanks to the annual allowance and lifetime allowance and the ridiculous state we are now in, senior doctors are dropping clinical sessions and not doing any extras to avoid being stung or even retiring early. Absolutely ridiculous situation.

One thing most people forget when talking about salaries is the value of benefits including pension.

Public Sector employees base pay can suffer by comparison to the private sector, but when you realise how much your gross salary needs to be to fund a private pension of equivalent value it can be shocking.

If I remember correctly in the 90s the maximum someone could contribute was 15% of salary. My boss in the public sector was going on and on about the salary of jobs in the private sector. I just said I would be looking for at least £x so I could put 15% into my pension and they were stunned. I explained why, they researched it , funnily enough they never mentioned private sector jobs again.

There is a final salary scheme where a I work (private sector) but it closed to new entrants a number of years ago. The contributions rose steeply about 3/4 years ago and are set to rise steeply again next year so staying in is really a matter of individual affordability. It is so much better than the DB scheme and includes a widow’s/widower’s pension and death in service payments. I’m hanging on in there as long as I can.

Please could you explain more about this? I've caught wind of it in the news but not really clued up on it. Is there a reason the lifetime allowance and annual allowance are posing problems for NHS employees specifically, or is it just the allowances in general?

The accrual rate in the 2015 scheme is 1/54 or 1.85%.

Annual salary
£30k = £555 per year x 40 years = £22,200 plus annual revaluation at CPI + 1.5%

£50k = £925 per year x 40 years = £37k pension + annual revaluation at CPI + 1.5%.

£100k = £1,850 x 40 years = £74k plus annual revaluation at CPI + 1.5%.

Rough figures but with the CPI + 1.5% revaluation on top it’s a good pension.

@hamustro the lifetime allowance affects all pensions. Govt info here www.gov.uk/tax-on-your-private-pension/lifetime-allowance

The annual and lifetime allowances affect members of all pension schemes, but it’s having a particular impact on the NHS because it means doctors and nurses are retiring earlier than they otherwise would and/or not doing any overtime because of the risk of high tax bills on their pension accrual. This all adds to the NHS staffing crisis.

Is there a reason the lifetime allowance and annual allowance are posing problems for NHS employees specifically

The vast majority of workers will never get anywhere near their lifetime allowance. NHS consultants are a bit of an outlier on this point due to the amount they are putting into funds.

I am 45 and in the 1995 section, I cannot for
Love or money work out my pension. I know I can take it at 60 and contribute 12.5% but no idea how much I'll retire on!

It’s the allowances in general but also how DB pension schemes are valued in terms of the benefit they provide.

Everyone gets a tax free amount they can contribute to their pension but over a limit you lose the tax free element so start paying 40% on contributions.

www.nhsbsa.nhs.uk/member-hub/lifetime-allowance
www.nhsbsa.nhs.uk/member-hub/annual-allowance

It staggers me how people can be paying 5 - 14.5% of their gross salary into their pension and not know how to find information on what their money is buying.

Thanks everyone! The reason it confused me slightly is because all the things I've seen in the news recently were focusing on NHS employees specifically rather than all people who were at risk of breaching the LTA/AA.

In the private sector you can control pension contributions. Not in the NHS so doctors are getting taxed on what is put into their pension pot (plus inflation). Probably at 40 or 45%.

Overtime to clear waiting lists is obviously taxed at marginal rate. But it also means more pension contributions which will also be taxed. The fact that it is future money means it is punitive as you don't have it to pay tax out of it.

Drs are fed up so reduce hours to reduce pay to reduce pension contributions & therefore reduce tax which is due now on money which doesn't actually exist yet.

Punching ourselves right in the face there.

@hamustro as others said - the rules don’t only apply to NHS. But it gets more press because it’s an easily described class of workers (rather than, say “accountants” who have wider range of salaries) and are all in DB pensions (unlike my accountants!) and it has an impact socially - in that we lose medical staff.

For my mythical accountant, they’re probably now in a DC scheme so even those earning far more than a doctor might not hit the annual allowance as quickly. And if they think, “happy days, I’ve got a huge pension I’ll stop contributing/ working” then the general public has no reason to care!

I have a final salary pension and anyone new starting at my employers would receive it too.

Jobs very rarely come up though as once people work there, they stay until retirement.

I count myself very lucky that not having a pension until I started there at 38, I will end up with something half decent when I retire.

The NHS pension is now a career average pension - so it is still a defined benefit pension (valuable and gives you a guaranteed pension at retirement) but is no longer based on the final salary but a career average Salary. This is less generous (generally) than final salary but still a very attractive pension.

So your friends are correct in that the rules have changed and it is no longer final Daley. But it is still a DB (Defined Benefit) pension

Typo - Final SALARY

I'm sorry do you think they're lieing??

This envy and hand wringinover NHS pensions is pathetic. NHS workers pay in hefty amounts often from their early 20s for many years of working. Yes it's a decent pension (less than it used to be for sure) but its paid for over many years.If most people pay in or invest equivalent amounts over long periods they will also have decent outcomes. Its not free money.

You can ask for a projection document. You’ll also have options on whether to take a larger lump sum with smaller annual pension or the other way round.

For the people asking WHY I’m so nosy. The couple in my original post are very good family friends. The husband works locally and the wife is a hospital consultant surgeon. She works 3.5 days a week and he is able to do 2/3 days wfh. So they seem to have fulfilling careers, nice work life balance, good salaries (both on 100K+ I assume) and until now, I thought great pensions.
I am genuinely happy for them, and I only want the best for them.
There is no jealousy element here, DH and I luckily have great careers and 6 figure incomes too.

Last week my nephew got in touch with them as he wants to study medicine. They say him down and explained why he shouldn’t do it. They were at ours on Friday and my nephew came to drop off something, they got him to stay a bit longer and told him again why a smart boy like him should look for other options. They’ve known him since he was a little boy so I know they want the best for him.

I heard of “Gold plated” NHS pensions. Although pay is slightly low, I always assumed early retirement oN a solid pension makes up. So asked here.

Where do you work ? 😍

The annual allowance is the amount of pensions savings you can make in 1 year without paying tax. It’s currently £40k. You have to pay tax on pensions savings over £40k.

With the NHS pensions, the pensions saving figure that counts towards the annual allowance is based on the increase of the member’s pension benefits over the year rather than just the money put in that year - so subtracting the value at the start of the year from the value at the end of the year, multiplied by a factor of 16, and inflation’s factored in too (although I think there’s been some talk of removing the inflation factor). Also, NHS staff can’t choose how much of their salary to put into their pension. That’s set by the NHS pension scheme - I think it’s currently 13.5% for consultants?

Put it all together, and it means that if a doctor’s had a big pay rise, and inflation’s high, then the difference between the start and end of the year can be massive. Much more massive than the amount of pension contributions a doctor’s actually made.

I know one doctor who started her first consultant job just after returning from maternity leave. She ended up with a pensions tax bill for that first year back after maternity leave of around £20k - that means that her pension growth would have been calculated at around £80k, the first £40k was the tax-free annual allowance, and she’d have been taxed on the second £40k of that growth.

For context here, the current consultant pay bands have a starting salary of around £88k. And the pension contributions a consultant earning £88k would make are around £11.88k a year.

Thanks. I've always found DB schemes a bit tricky to understand, never having had one! DC schemes have their drawbacks (cries at estimated £4,000 per year pension at age 68) but I find they're very straightforward in comparison!

You should get an annual statement in the summer which will lay out your pension statement. If you are a current member you can access anytime by logging into ESR.

Public sector pensions (Teachers, Police, Civil service, NHS etc) are all broadly similar. The 'gold-plated' line related to the final salary aspects and that they were index linked. (Went up with the retail price index)

In 2015 The government told all public sector pension members that the way their pensions accrued and would be paid was being changed.

In my case (and broadly in the other public bodies) this meant that anyone who was within ten years of their retirement date (so for me this was 60) .. would stay as things were and be able to continue accruing pension , ( retiring on a final salary 1/80 scheme.) So someone aged 55 in 2015 would work another five years and reap the benefits.

As an example (final salary)
Years worked : 30 x salary : 45000 (at retirement) / 0.08 = pension of £16875 pa.

Everyone who was below the 'cut off' age (under 50) was pushed into the new scheme. Which is a career average. They would have their final salary pension 'frozen' which could be taken at 60 but from 2015 could not add to it, could not increase it or pay into it anymore.

As is pretty obvious to anyone with even basic legal knowledge will know, this decision was hugely discriminatory. And was found to be so by the high court, (the mcloud judgement) . First of all on age grounds (50-60 year old gain whilst those under 50 lose out) .. and again on sex discrimination grounds as a 'career average pension' affects women who take maternity leave, part time for child care reasons etc). The government was forced to reverse the decision and put everyone back in the final salary scheme if they chose to do so. Until APRIL 2022 When it closed to everyone.

Annoyingly, this still hasn't been completed and anyone like me who plans to retire this year can't actually find out what there pension will be. We have to claim it 'as is' (which for me is 4 years missing final salary and my salary has increased by 15k in that time due to promotion) .. and then get it adjusted in October 2023 when the 'remedy' will be applied.

It's a complete fucking shambles. The court case was won in 2018 and it's taken FIVE YEARS to go through 'consultations' just to check that people would REALLY prefer to have the old better pension than the much worse new one !!

So no OP. There is no longer a final salary pension in the NHS or Civil Service. And the new one is definitely not gold-plated. Another reason people are leaving NHS in droves . Shit salary was bad enough.. but at least the pension was half decent. Now there isn't even that. Not surprised they counselled against your nephew becoming a doctor.