Planning a financial future with an NHS Pension in a potential recession

Planning for your finances is important, especially when it comes to ensuring you and your loved ones have everything you need to be comfortable in the future. But as we know, the financial landscape can change fast, so it’s good to make a plan for the unexpected. 

Earlier this year, it was predicted that the UK would fall into a recession in 2023. However, the economy has fared better than expected in the first half of this year, and the CBI now reports that the economy is set to grow by 0.4% in 2023, firming up to 1.8% in 2024.

Though it appears that the UK may narrowly avoid a recession, as independent medical financial advisors, we still think it wise to account for a potential recession while planning your financial future. 

Why are we talking about recession?

A recession is defined as a decline in economic activity. It was initially expected in the UK because of a combination of events in recent years, starting with the Covid pandemic, which caused an unprecedented drop in GDP during lockdown, followed by the war in Ukraine, which has impacted worldwide economic activity with the increase in oil and grain prices.

With the events that have occurred on a global scale in the last few years, it’s no surprise that economic activity has been affected. The current feeling is that the threat of recession could last until the end of the year, with the UK economy possibly taking a few more months than Europe and the USA to recover due to the exit from the EU.

How would a recession affect my NHS Pension?

A recession itself would have a limited impact on the NHS Pension however, the effect of rising inflation would. It would mean that the pensions will grow at a higher rate in the 2015 Scheme and for the 1995/2008 scheme for Practitioners with dynamisation measures at Consumer Price Index (CPI) +1.5%. As Pensions in payment are linked to CPI, NHS Pensioners will see their pension rising and keeping pace with inflation (not currently the case with wages). 

A consequence of rising prices is that NHS Pension members may consider opting out of the pension scheme as a good way to save monthly expenditure. Though this can be seen as a short-term solution, it has long-term implications for retirement income. It can have an even harsher impact on individuals who have opted out of the scheme and then fallen ill and need to claim ill health retirement, or if an individual were to pass away.

Though a recession may not directly affect your NHS Pension, the circumstances around it can, which could destabilise your financial future. This is why it’s important to plan your financial future with those worst-case scenarios in mind. 

Top 5 tips for planning your financial future around a recession 

  1. Reduce or look to pay off any loan or mortgage commitments 

This will help to free some of your monthly income when times are tough.

  1. Review your direct debits/bills and contact providers to negotiate and improve deals

You can also review your protection insurance to find the most cost-effective solution while ensuring the best quality cover so you’re not wasting any money.

  1. Continue with your NHS Pension Membership and avoid opting out of the scheme

As stated above, it can seem like a short-term solution, but its long-term effects can be much greater. Staying in the scheme is protecting your financial future.

  1. Build an emergency fund so that money is available to you in the event of needing immediate access to funds

Savvy financial planning with the help of an independent financial adviser can help with building up your emergency fund.

  1. Consider investing for the long term if possible, as investing when markets are low can result in better returns when markets recover

After a recession, the markets will recover, so if you have funds to invest during the recession the returns can be greater for you and will help take a step forward in securing your financial future.

With talk of recession in the news, it would be hard not to worry about how a recession would affect your NHS Pension and your current finances. That’s why at Chase de Vere Medical, we have a team of expert medical financial advisors on hand to help you prepare for the best and the worst. To find out more, get in touch and speak to an advisor.

Content correct at time of writing and is intended for general information only and should not be construed as advice.

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