Over 50,000 NHS workers have opted out of the NHS Pension Scheme in the last tax year due to the increasing financial strain caused by the ongoing cost of living crisis. While we empathise with the challenges these dedicated professionals face, it is important to recognise what they may be giving up by opting out of the NHS Pension Scheme.
In this article, we outline some key aspects of the NHS Pension Scheme and urge anyone considering opting out to make an informed decision with all facts available. If you’re considering leaving the scheme, consider seeking professional NHS Pension advice from Chase de Vere Medical.
What to reconsider when contemplating opting out of your NHS Pension
#1 – The importance of additional retirement income
Without proper provision for retirement, many may struggle financially to ever stop working. Although 35 years of work will likely qualify you for the State Pension, its annual amount of around a maximum for the current tax year of £10,600 may not be sufficient. By not opting out of the NHS Pension, you’ll benefit from additional retirement income.
#2 – Employer contributions add significant value, which you don’t get when opting out of the NHS Pension Scheme
The pension scheme includes substantial contributions from employers, legally mandated, which can result in higher future income than a private pension.
#3 – Opting out of the NHS Pension means giving up a guaranteed lifetime income
The NHS Pension provides a government-backed, guaranteed income for life upon reaching retirement age, ensuring a secure retirement regardless of longevity.
#4 – Inflation-proof retirement income
If you’re opting out of the NHS Pension, then you’re also opting out of the automatic adjustments the scheme makes to your retirement income according to inflation, maintaining your purchasing power in most years.
#5 – No investment risk in building your pension ‘pot’, but opting out of the NHS Pension Scheme can be a gamble
NHS Pension rules determine your retirement income, eliminating concerns about stock market performance or economic fluctuations. If you build your pension pot through investment rather than relying on a scheme, it comes with a risk that may not pay off.
#6 – Dependent benefits you don’t get when opting out of the NHS Pension
In addition to a guaranteed income for life, your legal spouse, registered civil partner, qualifying scheme partner and dependent children may receive a reduced income after your death, providing them with added financial security.
#7 – Lump sum death benefits
Beyond dependent income, your dependents may also receive a tax-free lump sum payment from your NHS Pension upon your death, which you will give up if you opt out of the NHS Pension Scheme.
#8 – Benefits in the event of ill health that won’t be covered by opting out of the NHS Pension Scheme
In the event of permanent ill health, an unreduced guaranteed inflation-proofed income is provided for life, which is enhanced for more serious illnesses. This is the kind of benefit that you can’t guarantee outside of the NHS Pension.
#9 – Building additional NHS Pension
Through paying for Additional Pension in your NHS Pension you can increase your retirement income by up to £6,500 per annum, providing you additional income in your retirement.
#10 – Assessing tax implications with net position when considering opting out of your NHS Pension
Higher taxes due to the annual allowance are considerations; however, this may still result in a better overall financial position, especially with recent government announcements on pension tax rules.
#11 – Personal pensions lack the same security
Opting out of the NHS Pension Scheme means you’ll be giving up the risk protection it provides for a private pension that lacks guaranteed income.
Is opting out of the NHS Pension Scheme right for you?
Before opting out of the NHS pension, seek advice from a professional financial adviser experienced in handling similar situations. This complex decision requires a thorough understanding of your unique circumstances to avoid giving up valuable benefits.
Chase de Vere offers a complimentary initial consultation with a specialist financial adviser who can listen to your situation, provide an outline of key considerations, and guide you in the right direction. You can arrange your consultation today.
The Financial Conduct Authority does not regulate tax planning.
Content correct at time of writing and is intended for general information only and should not be construed as advice.
Disclaimer
The value of your investments can go down as well as up, so you could get back less than you invested. Past performance is not a reliable indicator of future performance.
The information contained within this article is based on our understanding of legislation, whether proposed or in force, and market practice at the time of writing. Levels, bases and reliefs from taxation may be subject to change.