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Fears around NHS staff confusion in opting out of ‘generous’ pensions offering

8 April 2019

Chase de Vere Medical has warned that NHS employees are shunning the NHS pension scheme because of a lack of understanding of the valuable benefits they stand to lose. 

According to a recent Freedom of Information request by the Health Service Journal, 245,561 NHS staff have opted out of the NHS pension scheme in the last three years, accounting for 16% of the active membership.

Evidence suggests that for many, the decision to leave the scheme is based on conversations with colleagues or negative media reports which have raised a question mark over both the affordability of the scheme and whether it’s a worthwhile investment.

Those in previous versions of the NHS Pension had a scheme retirement date of 60 or 65 and pension benefits based on their final salary. The current pension, the 2015 Scheme, has a retirement age linked to the State Pension Age and benefits based on their career average salary.

However, according to Chase de Vere Medical, NHS workers often don’t appreciate that the scheme accrual rate of 1/54th of pensionable earnings in each year of active membership remains a generous offering.

Andrea Sproates, head of Chase de Vere Medical, commented: “Those hospital doctors who were in the 1995 or 2008 sections of the Pension Scheme may also be unaware that they can lose out with regard to their existing final salary benefits if they decide not to join the 2015 scheme. Equally, GPs will lose their dynamising uplift if they choose not to join the 2015 scheme.

“It needs to be made clear that for many members the NHS pension represents excellent value and they should stay in it. According to our calculations, somebody saving into a private pension may need to invest between 4 times and 6 times the amount of an NHS employee to achieve comparable benefits to those of the NHS pension scheme.”

The NHS pension scheme is flexible in that it allows members to opt in and out when they choose and there is an argument that high-earning medical professionals should take advantage of this by opting out of the scheme for periods to reduce the risk of tax charges for exceeding the annual allowance. However, the less time they spend in the scheme, the lower pension benefits they accrue.

Doctors are also turning down extra work because they believe they’ll end up paying as much, if not more, in tax charges than they’ll earn through the work. But Chase de Vere Medical says this is not a case of ‘one size fits all’, with many doctors able to work extra hours without being hit with excessive pension tax charges.

According to the firm, NHS professionals should be careful not to consider possible tax charges in isolation but to compare them against the extra pension benefits that can be accrued by staying in the scheme. Put very simply, if the benefits exceed the charges then there is a strong argument for staying put and each individual should check their own position before making a decision.

Sproates commented: “The NHS Pension Scheme is generally excellent value; it provides valuable benefits which are guaranteed by the government and would be expensive to replicate with a private pension. The majority of scheme members should ignore all of the background noise and remain in the Pension Scheme.

“However, for high earning medical professionals the pension tax rules can be complex and confusing and there are an increasing number of cases where making the wrong decisions could lead to them missing out on pension benefits or facing a significant tax charge. We can’t stress enough that one size does not fit all, and each individual’s circumstances may result in a different outcome. It therefore makes sense for high earners, and those who have built up significant pension benefits, to take specialist financial advice before they make any decisions or take any action.”

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