Opting out of NHS pension

[Tabl]

Im early 30s single mother. At the end of the month I have no money left, better than being on minus I suppose. Im thinking of opting out of pension (£350 a month) to live a little. Would take my LO to do some travelling, days out etc.
I would do it maybe for a year or two. I feel like Im not living but just existing. Anybody else has done it?

I really appreciate this.

Sorry some more questions.

Imagine I earn £54k (for calculation sake)

So I receive £1k a year when I retire?
If I worked from 2015 to 2025, I get £10k?

Is that £10k every year until I die split between 12 months?

And would my 1995 and 2008 ones be added separately to become one ‘grand total’?

Thanks for the free financial advice!

I so nearly opted out of my pension when I start with the NHS (for far less good reason than you, I was just young free single and skint) and I'm SO grateful my relative talked me out of it.

NHS pension isn't quite what it used to be, but despite that it's a very rare type of pension, not really offered anywhere else (worth reading up on this to understand more) and you will so kick yourself later.

Do anything to reduce costs/have fun for free before you do that.

Also agree with what someone said, you will never opt back in, when would it ever feel like a good time to give yourself a 'pay cut' in future? It's just never going to happen

I'm assuming you have continuous service and full time. (And I'm ignoring McCloud.)

If you worked part time before 2015, then for the 1995 and 2008 calculations below where it says 'years' use a fraction of year equivalent to the fraction of full time hours that you did.

You need to know what pension sections you are in.

• If you started after 2015, it's the 2015.
• If you started after 2008 it's the 2008 and the 2015.
• If you started before 2008 it's either 2015 and 1995 or 2015 and 2008, but not both.

First calculation. For years in the 1995 pension, take your salary now (or full time equivalent salary, if you work part time now) and multiply it by the number of years between starting and 2015, then divide by 80. You can take this pension at age 55 or 60.

Second calculation. For years in the 2008 pension take your salary now (or full time equivalent salary, if you work part time now) and multiply it by the number of years between starting and 2015, then divide by 60. You can take this pension at age 65.

Third calculation. For years in the 2015 pension, take your salary for each year between 2015 and now, add them all together then divide by 54. You can take this at state pension age.

Forth calculation. take the results of the above and add them together. This will be your annual pension if you add no more to it. If you stay in the NHS you will keep adding 1/54th or your salary to the pension every year.

This. The 1995 pension was fantastic. It's now still pretty good but certainly nowhere near as great as many outside of the NHS think it is. And you can't claim it until the state pension age.
We all need a pension so it makes complete sense to stay in in the NHS one (I don't think the OP should opt out) but honestly it's not as great as people seem to think it is.

@LoudSnoringDog if you are a current scheme member in England you can log into your Total Rewards Statement and ask for an annual pension summary.

As others have said if you are older there are often two parts as you will be in two (or possibly 3) schemes - 1995, 2008, 2015. You have to look at both.

McLeod ruling will change the numbers, probably upwards. It's exciting for me. I think I'll be able to retire earlier on the back of it. Yay!!

@FridayButterfly pretty much. It's a career average earnings pension not final salary now. So if you are on £54k you have £1k pension benefit for each year you earn £54k. If you go down to half your hours, for each complete year at that salary of £27k, you'd have £500 pension benefit.

I say pension benefit, because the amount per year is added cumulatively and revalued each year to account for inflation. So your £1k on £54k now will actually be more than £1k when you retire.

Your total rewards statements will give you a breakdown of all pensions, I've got a tiny bit in 2008 but most in 2015. I've no idea in practise how you get paid from the different schemes but I imagine BSA do the complicated maths and pay you one amount each month combining all sections of the pension.

Have a look at page six here. The 'pot' referred to is hypothetical in that it's not actual money in a real pot, but a funding pot the government are guaranteeing to provide when you retire. Like anything, the gov don't have spare cash in the coffers so it's very much we pay a charge which is probably funding the current retirees.

www.nhsbsa.nhs.uk/sites/default/files/2015%20Members%20Guide%20%28V11%29%2007.2021.pdf

Did that poster mean £16,000 pa rather £1600 pa? £1600 must be wrong.

@mottytotty I suspect that's her reading the statement wrong tbh. It may well be what she'd get if she retired today, not at pension age.

Dacadactyl i think you’re right, thanks.

Thank you too for an amazing clear explanation.

Can I ask what you mean when you say ‘that will be your pension’? Is that figure the annual amount which will be divided up each year and paid monthly?

My TRS only shows the past year. I don’t know how to get a proper pension statement online.

Thank you again.

It's if I retire today after 10 years. I have approx 30 left. It's actually about £2000 with the 2008 scheme @mottytotty

Not being rude but if your paying £350 you must be on over 43k a year
can u look at your budget and see if there’s anything u can cut back on
as others said cancelling that you would probably have £220 extra in your take home

Ah, I see. Thanks Cinnamon.

Is that figure the annual amount which will be divided up each year and paid monthly?

Yes.

I am slightly irritated that I have spoken to accountants, and financial advisors recommended by my union, yet MN posters have explained it to me in a far simpler way that I actually understand!

Thanks all.

I find people in those professions usually not so good at breaking things down in a way that people who do not work in their areas can understand! The fantastic ones are the ones who can do that.

Are you in England, and have you moved organisation recently, for TRS not to have linked your previous service? When I login I can click various statements but they show all sections of pension for me back to when I started.

I know, MNers are really great at this stuff. I’ve had pension questions answered here before as well. And then when I met with a financial advisor, he just said what I learned here.

The McCloud judgement also effectively gives choice to those who were in legacy nhs schemes about which scheme they want contributions between 2015 and 2022 to be allocated to. (Choice is at retirement, not in advance).

The accrual rate is worse in the 1995 scheme (1/80) but you can take your pension without reduction at a much earlier pension age (60).

Total rewards statements don't currently allow you to see the impact of McCloud choices, but it's something to consider for those wanting to retire before state retirement age.

Employer contribution is irrelevant in DB pension schemes.

Interesting. Why was the accrual rate lower in 1995?

Understood, thanks

It assumed you would join the NHS immediately after training, work solidly for 40 years and retire at 60 with a pension worth half your salary. Nice and easy to explain when getting people to sign up.

Each new pension section since then has had a higher accrual rate but also a later pension age - so to some extent they cancel each other out in terms of how much someone with average life expectancy will get. With the 1995 pension you get a lower yearly amount than the 2015, but paid for 7 or 8 more years.

I have been at the same English trust since 2000! So I don’t know why it’s not showing.

I definitely need jargon-free explanations so thank you.

I'm sure they make it confusing on purpose. The same as working out your payslip.