What does opting out of the NHS Pension Scheme mean, and how do you do it?
Opting out of your NHS Pension is not a decision to be taken lightly because, despite reforms including higher rates of pay contribution and the introduction of the career average scheme, the NHS Pension still offers excellent value for money when it comes to your retirement cover and benefits. If you’re considering opting out of your NHS Pension, you may want to think carefully about the benefits you may be giving up.
Whether or not opting out of the NHS Pension Scheme is the right thing for you depends on your financial situation. Engaging with a financial adviser is recommended to ensure you make the right decision for your financial future.
If you’re still in the early stages of considering opting out of your NHS Pension, keep reading to find out more about what it means to opt-out, what your next steps are and beyond.
Why you may be opting out of the NHS Pension Scheme
An obvious reason for opting out of the NHS Pension scheme is a career change if you have found new employment outside the NHS. In this instance, as long as you’ve been working for the NHS for more than two years, you can defer your pension, leaving your benefits in the scheme and drawing the pension when the time comes.
Another reason for opting out of the NHS Pension Scheme may be related to the member contributions. They’re at a fixed rate, with no option to temporarily reduce them, so if you need to improve cash flow immediately, opting out of your NHS Pension may seem like the only option.
If you’re a high-earning member of the scheme, it may be tempting to opt out of the NHS Pension Scheme to avoid high tax charges concerning an annual allowance breach.
The NHS Pension benefits are generous, but due to recent changes over the last few years, some people find they are no longer quite as generous as older schemes. However, the scheme still offers objectively good benefits, so it’s worth considering them before choosing to opt out of the NHS Pension Scheme for good.
With the exception of leaving the NHS, in most other cases, there are better options to solve your challenges that don’t include leaving the pension scheme. Our specialist independent financial advisers are experts when it comes to the NHS Pension Scheme and can help you to find the best option for you without having to risk your retirement funds.
The process of opting out of the NHS Pension
There is only one way to opt out of the NHS Pension Scheme; you must complete Part 1 of the Application to leave the NHS Pension Scheme (SD502). Your employer will complete Part 2, and the payroll department will forward both parts to NHS Pensions. Any other request to opt-out, such as email, letter, or verbal, will not be accepted.
You’ll then be made to sign an application form to leave the NHS Pension Scheme (SD502), which has important declarations and information that you must read to confirm that you are aware of the benefits you are giving up by opting out of the NHS Pension.
If you opt out of the NHS Pension Scheme, you can opt back in later if you meet the scheme’s standard eligibility criteria.
Reasons not to opt out of your NHS Pension
When considering opting out of the NHS Pension Scheme, you need to have all the facts available. There are reasons why you should not opt out of your NHS Pension including:
- It offers important additional retirement income. Though you will have been working for at least 35 years by the time you come to require, the State pension you qualify for may not be sufficient.
- Employer contribution offers significant value. The NHS Pension Scheme includes substantial and legally mandated ones, which can result in higher future income than a private pension.
- It’s a guaranteed lifetime income, government-backed and guaranteed for life upon reaching retirement age, which ensures a secure retirement regardless of longevity.
- Inflation-proof retirement income because the NHS Pension Scheme adjusts your retirement income based on inflation, ensuring you’re covered.
You can find out more benefits you benefit from by staying in the NHS Pension Scheme here.
Opting out of the NHS Pension Scheme should not be taken lightly. We urge anyone considering opting out to seek professional financial advice from our Chase de Vere Medical independent financial advisers, specialists in the NHS Pension Scheme. Get in touch today.
Disclaimer
The information provided herein is based on current tax laws and regulations, which are subject to change.
The Financial Conduct Authority (FCA) does not regulate tax advice.
Please be aware that the value of investments can fall as well as rise, so you could get back less than you invest. Past performance is not a reliable indicator of future results.
The above is not individual financial advice.