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Concerns around high opt out rate among NHS workers

1 January 2019

Royal London has raised concerns that 245,561 NHS workers have opted out of the NHS pension scheme in the past three years, a far higher number than in other public services schemes, which could seriously affect people’s retirement, the mutual says.   

The data comes from a Freedom of Information (FOI) request by the Health Service Journal and represents around 16% of the active membership of the scheme according to Royal London calculations.

In comparison FOIs for the Teachers, Civil Service and Armed Forces schemes revealed much lower levels of opt-out (3.4%, 1.45% and 0.04% respectively).

Calculations by Royal London show that individual NHS workers who opt out are giving up a large amount of pension.  The mutual cites as an example, an NHS worker earning £25,000 per year (pay band 3) currently has to pay a contribution of 7.1% before tax relief.  After tax relief, opting out would save them £1,420 per year.  But replacing that pension in retirement would cost a lump sum of around £13,000. Workers who opt out are giving up pensions worth around nine times what they save.

While some opt outs in the NHS scheme are due to senior consultants and GPs leaving because they have reached tax relief limits for high earners, Royal London said the evidence is that NHS workers aged 26-35 were the most common age group to opt out, with 30,000 workers in this age band choosing to do so in 2017 alone.

Affecting the rise in opt outs could be squeezes on take-home pay of public sector employees and the effect of auto-enrolment public sector workers being enrolled into DB schemes at full contribution rate, rather than the phased approach which occurred in the private sector.

Commenting, Steve Webb, director of policy at Royal London, said: “The NHS as an employer needs to take urgent action to tackle this epidemic of pension opt-outs. All public sector workers have faced a squeeze on their take-home pay in recent years, but it is in the NHS where this has translated into shockingly high numbers of people leaving the pension scheme. Those who opt out will save money in the short term, but could lose nine times as much in the long-term in reduced pension rights. The NHS needs to find better ways to communicate the value of NHS pensions, otherwise large numbers of NHS staff risk a retirement in poverty.”


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