55+ and Working in the NHS?

NHS Pension Scheme might not be for you!

If you’re in your mid-50s or older, you may want to consider opting out of the NHS Pension Scheme. At least that’s what we’re investigating at the moment for some of our clients.

It could potentially save them thousands of pounds in contributions every year but increase their pension benefits by more than if they remain in the scheme.

It’s all because the economy is in an unusual position with an NHS pay freeze and expected low increments over the next few years against a back drop of relatively high consumer price index (CPI) inflation.

Here’s how it works

If you work full time, are at the higher levels of basic pay and remain in the NHS Pension Scheme (1995 option) then your pension increases by 1/80th for every year that you’re in the scheme.

Opting Out of the NHS Pension SchemeThis equates to a circa £1,250pa pension benefit increase (the tax free lump sum would be £3,750).  That’s approximately a 2.5% increase.

If you leave the NHS Pension Scheme, you no longer make contributions to it and become a deferred member. 

You not only save 7.5%-8.5% of your superannuated pay (normally £7,000 minimum), your pension benefits will increase according to the CPI which has been running at over 5% recently (it is currently 4.8%). At this CPI rate, you would benefit from a higher pension increase than if you had remained in the scheme.

In essence, the lower the CPI the more attractive staying in the NHS Pension Scheme becomes. Even if CPI falls to say 2.5%, opting out would still save you 7.5%.

Based on our initial calculations, CPI would have to fall dramatically for you to be worse off opting out or conversely, you would have to get a rise in your superannuated pay.

The caveats!

If you are due a pay increment, typically moving from £94,911 to the highest level at £100,446, then opting out of the NHS Pension Scheme is not a good idea.

CPI at 5%Your pension benefit increase will be higher than CPI, you may lose some benefits such as death in service and, it could impact your ill health pension.

You also need to take a view on where CPI is headed. Do you think it will remain around the 5% mark, fall or rise and if so, how dramatically?

I have said in previous articles that recommending somebody move out of the NHS Pension Scheme is tantamount to heresy or telling someone that they should start smoking. 

You need to take professional advice before you commit to anything so drastic but it’s certainly worth more than a fleeting thought.


Article by Max Spurgeon
IFA to Doctors and Dentists
Director at Legal & Medical Investments
December 2011

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