NHS Pension

[headcheffer]

I'm wondering if anyone can give me advice regarding the NHS pension scheme please. To date, I haven't joined because we needed to prioritise spending elsewhere. We are now in a comfortable financial position. I am due to soon inherit a lump sum of money that can be put in a pension fund as we don't need to spend it so I'm very fortunate!

However I'm now wondering what I do about the NHS pension scheme. I'm 35, and currently at Band 8c so I earn (in my view) a decent amount and pension contributions would be 12.5% (I think). I know employer pensions are usually a no brainer but I'm wondering if this is the case in my circumstances but I'm useless with finances!!

It's a CARE pension scheme and I would be paying in about £450 I think. As I understand it I then would "earn" 1/54th of my salary each year into a retirement pot. This is significantly less than I've paid in, but it would then have 25 (if I retire at 60) years to be uplifted.

My question is, isn't this money better added to my private pension pot, or paying off our mortgage in a chunk each mortgage renewal? I just don't understand how I could pay in over £4500 each year but actually on get £1296 put in a pension pot? Wouldn't I be better just putting the £4500 directly into investments myself under a private pension wrapper or similar?

Thanks so much and sorry for the long post!

Your employer adds 14.3% to your 12.5%. Plus, your 12.5 % is not taxed. Out of that, it’s1/54.
There are practically no other pensions that pay better.

I earn less than you as an 8b Op and my pension deduction is nearly £700 a month.

Having said that I absolutely think that the NHS pension is worth it.

I think you’ve misunderstood. There is no actual pot as it’s a CARE scheme. Every year’s contributions adds to the amount you will get per year on your retirement. It’s definitely worth joining.

Someone just told me the NHS pension scheme is one of the best pension scheme around…

UK public sector schemes are not as good as they were. Moves from final salary to career average and massively increased contributions have changed the balance but the benefit you get is defined now and underwritten by HMG.

Private schemes, called defined contribution or money purchase schemes have never got anywhere near that offer in terms of returns for life.

Short of this country going the way of some Eurozone places (ie bankrupt) I don't think there is any downside.

I'm in TPS (for now) rather than NHS, but... this. What you are buying is a lifetime of being paid that 1/54 every year; in the jargon it's "defined benefit" (you know what you'll get out) rather than "defined contribution" (you know what you've put in). That rather changes the picture!

The NHS pension scheme is probably better than most private company pensions, It's a no brainer to join, not least because it's deducted before tax which at band 8c you will be a high rate tax payer.

I get the tax bit but in the documents I've seen, I don't see that my employer pays in. I pay in, and then I get 1/54th of my salary for each year.

I always hear this too!

The NHS pension is better than private company ones. Definitely opt back in.

Your employer definitely pays in, Op.

Have you read this one OP? https://www.nhsbsa.nhs.uk/sites/default/files/2015%20Members%20Guide%20%28V11%29%2007.2021.pdf

Theres a useful diagram a couple of pages in if you like that kind of thing.

Thanks so much all!! The explanation of it being that I'm basically buying a payment for life makes sense! It's all the 1/54ths added together that I would then get each year, and that's the value. I think I'm struggling to get it because neither of my parents have pensions like this they just have a big pot! I really appreciate your advice.

In a way, the employer contribution is irrelevant to you (so it's not stressed as much as in private schemes). The NHS pension is "unfunded" which means that current contributions are used to pay existing pensioners rather than being saved up for you. That's how the pension amounts can be guaranteed; it is later generations who will be paying for you.

Super helpful thank you!

Spot on! So if you worked for 54 years you would end up with a pension which is the same your Career Average salary (hence the name of the scheme). As a bonus, the money gets increased by inflation each year. It's a great pension.

I used an online calculator and whilst my gross deductions would be £800+ the actual reduction in my monthly wages would be £527. So a bit higher than I thought, but good to know it's not £800 in my net pay!

Just to add a bit more clarification - taking the figures in your OP you said that in your first year in the scheme you will pay in around £4500 and earn pension of around £1300. What you’re missing is that the £1300 is then paid every year from retirement to death. That could be 25 years. That’s a total payout of £32500 in return for the £4500 you paid in. And that £1300 will go up with inflation so the total payout will be even more than £32500. Plus there could be further dependants benefits payable after your death.

And that’s just for one year in the scheme. Multiply that by all the years you will be in the scheme and you can see how good it is.

Not to be morbid but if you die whilst laying in to the pension, it pays a 2x annual salary death in service payment too.

Probably also includes a widows/orphans too if you die 'in harness'.

As others have said, it’s the best in the business. And goes up at over CPI per year so the accruals alone are worth a huge amount. This year it’s an increase of 10%. It’s actually madness!

Start paying in as soon as you can.

Your employer definitely pays in (a LOT!) but it's a red herring as it's not into a pot of money for yourself. They're just contributing towards the vast cost of the scheme, basically guaranteeing you a set amount even if you live to 120. Ie there is no 'pot' to run out.