NHS Pension Explained: Should I Opt Out in 2025?

The NHS pension scheme has been described as one of the best, most generous pension schemes in the country.

So why did 75,000 NHS staff leave.

The pension scheme just this last tax year? A pension scheme that has been described.

As very generous, that even bankers and.

People in the private sector will say, to get similar benefits, you have to pay almost three times to get something similar.

Well, if you are thinking of leaving.

The NHS pension scheme, or if you're wondering if it's worth staying, then this video is for you. In this video, we are going to delve into the pros and the cons of what people perceive as the benefits or the disadvantages of being in the NHS pension scheme. And of course, I will share my own experience of being in the NHS pension scheme and being out of it. If you're interested, come along with me, I'll take a proper look at it. Alright, then.

Are you thinking about leaving the NHS pension scheme? With the cost of living rising and wages of NHS workers not keeping pace, many doctors and healthcare professionals are facing really tough choices now. More than 75,000 NHS staff pulled out of the NHS pension scheme in the last financial year, including 25,000 people aged under 30 years, some of which watch my channel. So one question we keep getting from doctors at moneywise Doctor is whether to stay in the NHS pension. Pensions came or opt out. But before you make that decision, because I think it's a big decision, there are a few things you need to think about. As a doctor who's been through this, I get how complicated it can be and feel. So in this episode, I'm going to share my own experience about the things you need to consider before leaving the NHS pension. I think you need to take your time and understand these things clearly. Now, if you're new to this channel, welcome back to Moneywise Doctor Channel. On this platform, we provide guidance and tips to doctors and healthcare professionals to support you to make smarter financial decisions and avoid costly mistakes. Today, we are diving into a critical topic that many of you have been asking about. Should you opt out of the NHS pension scheme? Is it a costly mistake? Now? It's a decision that can have a significant implication for your financial future. So let's explore the pros and the cons first of staying in the scheme. But before we jump in, I'll share a bit about my own story. Quick disclaimer. I'm not a professional financial advisor or pension fund expert, but have been an investor and a doctor for a several, I'll say over a decade, going to a couple of Decades now. So I believe the content and the context of the video will inspire you to do your own research and make informed decisions. If you want a financial advisor, head over to moneywisedoctor.com to find an independent financial advisor. Now, let me tell you a bit about my own story. So, two years ago I decided to leave my salary job as a gp. I was at a crossroad. I was fortunate enough to be in a position where after having worked a few years in the NHS and managing my own investment and side hustles, I was able to leave the salary job and not need a regular job. However, I had one dilemma. Leaving my job would mean saying goodbye, like to the loo to my precious NHS pension. Now, leaving the NHS salary job and not being in a self employed NHS position meant I couldn't contribute more to the NHS pension. So I didn't close my NHS pension, but I'm no longer able to contribute to it. It's still there, but not a significant part of my financial plan. And I've made alternative arrangements. So that's my own experience. But today is about you. Should you leave the NHS pension? Let's look at the pros and cons carefully. But before we do that, I think one of the main things people complain about the NHS pension is about the amount being taken out of their pay, so they're having less money to take home. So how much are you really contributing? Now, here on the screen is a table from the NHS showing the pension contribution based on your pensionable pay. And as you can see, the lowest is 5.2% for those earning 13,000 and less. Most of the doctors and healthcare professionals on our platform earn far more than that. But if you check it up all the way to Those earning above 62,000, you pay 12.5% into your pension. Remember, you're paying into your future. Now let's look at some of the pros. The benefits of the pension scheme. The NHS pension scheme has been adhered and a lot of people have said it's one of the most generous pension schemes. Here are some of the benefits. Benefit 1 is guaranteed income in retirement. One of the most compelling reasons people stay in the NHS pension scheme is the assurance of a guaranteed income in retirement. So remaining in the NHS pension scheme ensures that you will receive a lifetime income in retirement. So that provides financial security for you as long as you live. Even if you live as long as made to seller. Example, suppose you retire at age of 68 and get a full pension. Live another 32 years to 100 years, you get a full pension payment, so you'll be getting a salary for life throughout your remaining retirement age. So that sounds quite generous to me. And not all the pensions provide this option. Benefit Number two NHS Pension Employer Contributions now the generous contributions made by your employer are another significant benefit of the NHS pension scheme. These contributions serve as a valuable addition to your retirement savings. They help you to build a substantial pension port over time. So opting out of the NHS pension effectively means you're taking a pay cut as this will mean you miss these contributions. So example, let's say you're a salary doctor earning about 50,000 or 60,000 a year. Your employer contributions to your pension could amount to a few thousand pounds annually, so significantly boosting your retirement savings without any additional effort on your part. If you're facing financial challenges, don't miss out on your employer contributions because of that. Instead, consider claiming tax relief and taking other strategies that will Suggest on moneywise doctor.com if you check the links in the description, we've included links for resources that can help you to claim back your full professional expenses several years. Remember, you can claim four years back and many doctors have used it to claim several thousands of pounds. Also in the link in the description, I've put in a link for you to subscribe to our weekly newsletter where we share tips and you can useful resources that can help doctors and healthcare professionals make smarter decisions and also not miss out on tax relief and things like their isa. Now let's jump into benefit number three Inflation Proof Income now if you don't know what inflation is, inflation means that your money may not be able to buy as much today as it could in the past. I'm sure most of us understand that inflation can erode the value of your savings over time. The but the NHS pension scheme offers protection against this risk by providing an inflation proof income. This means that your pension payments are adjusted regularly to keep pace with the rising prices, ensuring that your purchasing power remains intact. Now according to the latest data from the Office of National Statistics, the core CPIH annual inflation rate was 4.7% in March 2024. By staying in the NHS pension scheme, you can rest assured that your pension income will keep pace with inflation, allowing you to maintain your standard of living in the face of rising costs. Benefit 4 no investment risk While I've always been a big fan of investing and I appreciate the benefits it offers and has helped me to get to where I got to, I firmly believe the importance of saving some of your money in a place where it's not in spite of exposed investment risk, that's where the NHS pension comes in. Unlike the private pension schemes, your NHS pension income, which is a defined benefit scheme, is based on your service length and salary, rather than how up and down the stock market goes. So it takes away that risk for you. With the government guaranteeing your pension income, you don't need to worry about the ups and downs of the market or how well your pension investment returns are going. So think about it. When the economy is shaky, like during the stock market downturns or recessions, people with private pensions might see their savings go down. However, NHS pensioners can relax, knowing that their income is secure and won't change as a result of market fluctuations. So for healthcare professionals, especially those that need a stable income, the NHS pension is a reliable option in an uncertain financial world. Benefit number five Benefit for ill health. Now, nobody prays for ill health or injury, but these are things that can happen. So if you're unable to work for a long time due to disability or permanent injury, think about it. Would you be able to have alternative sources of income that can cover if you've invested your investment returns enough to cover you? If this is not the case, then think carefully about leaving the NHS pension. If you become unwell or you become injured during work and unable to work, the NHS pension can actually provide you enhanced benefit for ill health, providing financial support if you're unable to work due to illness or disability. Now, these benefits offer additional valuable protection and peace of mind in the face of unexpected health challenges. A very simple example. If you are diagnosed with a serious illness that prevents you from continuing your medical career, the NHS pension scheme provides financial assistance to help you cover your medical expenses, rehabilitation costs and even other expenses during your recovery period. Benefit 6 lump sum death benefits Again, grim. In addition to providing for your own retirement, the NHS pension scheme offers valuable benefits for your loved ones in the event of your passing. Your legal spouse, registered civil partner, qualifying scheme partner and dependent children may be entitled to a tax free lump sum payment, providing them with financial support during what could be a very difficult time. Suppose you tragically pass away. We're not hoping for that. But if that happens before retirement age, your spouse and your children will get a lump sum payment. And this is one of the benefits of the NHS pension that is not basically available in most other defined contributions. Pensions. Number seven Tax efficiency. I love this one. So, pension offers one of the most tax efficient methods for saving towards retirement and the NHS pension scheme is a prime example of this. When you contribute to the NHS pension scheme, you receive tax relief at your highest marginal rate, which means you can save more for your retirement while reducing your overall tax bill. The current taxi, the allowance stands at £60,000, providing you enough room for contributions. I remember during a recent money wise doctor session with 20 GP partners, we discussed strategies for optimizing pension contributions in a tax efficient manner. So most GP partners can make contributions both as employers and as employees. This is very tax efficient and is one of the best ways to be tax efficient. If you are not a GP partner, contributing to your pension is still a very tax efficient strategy. For instance, if you're a higher rate taxpayer, every £100 you contribute towards your pension, the government contributes another £40. Basically. So if you are taxed at 40%, you're getting tax relief at that 40% levels. So that allows you to grow your income in the future. Now, it's essential to understand that opting out of the NHS pension would lead to an increased tax bill. It might take more money home, but because the money that goes out from your income to NHS pension is tax free, it's taxed when you withdraw the pension. So if you take more money home because you left the pension, you might be taxed more. Benefit number eight, protection against longevity risk. So when you think about longevity risk, a lot of people don't underestimate how long they might live. People with advances in technology and in medicine, a lot of people live much, much longer. So if you have a salary for life, it means that irrespective of how you live again, even if you live as long as Metusela, you're covered by the NHS pension. So if you want to make sure that you're covered all the way, the NHS pension covers you. Based on that. Now, benefit number nine, the NHS pension is portable. You can take it with you wherever you go. Now, some people opt out of the NHS pension because they plan to leave the UK in the future. Maybe they are looking for greener pastures, they want to go to another country. Now, this may not be the best reason to leave. The NHS pension scheme is portable. If you move to another country, your pension contributions are not lost. Eligible members can transfer their pension contribution and benefits accrued to their destination country. However, if you're not eligible for that transfer due to differences in the pension schemes between countries, you can still assess your pension benefits upon reaching pension age or retirement age. So this portability offers flexibility and peace of mind, knowing that your pension savings can accompany you wherever life takes you. And now we are getting to number 10. Drum roll. Peace of mind. You can't put a price on peace of mind. The NHS pension scheme provides you with a sense of security and peace of mind for healthcare professionals regarding their retirement income. Knowing that you have a guaranteed income that can be adjusted with inflation, it takes away a lot of financial worries. Now, this peace of mind can allow you to focus more on your career and personal life without the stress of market fluctuations or investment decisions impacting your retirement plans. So with the NHS pension scheme, you can retire with confidence, knowing that your financial needs will be taken care of throughout your retirement years. Seems like a good deal to me. So while staying in the NHS pension scheme offers numerous benefits, there are also some potential drawbacks to consider. Let's look at the other side. Number one we already know about is lower take home pay. So you take less because pension money goes to the pension. By contributing to the NHS pension scheme, you reduce your current take home pay as contributions are deducted from your salary before tax. This could affect your immediate financial situation, especially if you're in it. If you're on a tight budget or have other financial obligations. However, overall you pay more tax now and in the future because you'll be losing out on future contributions. Number two disadvantage, limited control. Unlike private pension schemes or other investment options like sip, you have limited options of how you can invest your NHS pension scheme. There's lack of control, you don't have a say where it goes and some people prefer to manage their own investments. Yeah, so that's one disadvantage. Another one is changes to scheme rules. So currently we're on the 19, I think we're on the 2015 scheme. And there has been several other schemes and these schemes could change over time. Previously, people could retire at 65 at some point or 60 and the current scheme is 68. So these things could also change. Yeah, so of course, another issue people talk about is potential for future taxation, of course, or pensions. While pension contributions receive tax relief at your marginal rate, there's a possibility of future changes to the tax laws affecting pension withdrawal or benefits. So this uncertainty could affect the tax efficiency of your pension in the long run. One other con that people worry about is impact on the lifetime allowance. Now, you might be able to contribute to your NHS pension scheme, but it could result in your pension benefits exceeding the lifetime allowance limit set by hmroc, the tax lords. So breaching this limit can lead to another charges on your tax benefits. So one more scheme, one more issue with the scheme people have highlighted is reliance on government Funding. So, since the government is ultimately responsible for funding the pension scheme, there are concerns that the long term viability of potential funding issues in the future, changes in the government policy or budgetary constraints could affect the scheme's financial stability. However, overall, I think the benefits of the NHS pension scheme far outweigh all the drawbacks. But that's just my personal opinion. You don't have to take it all. Before we wrap up, let's touch briefly on state pension and private pensions, because that's what some people who are pulled out are relying on. Now. The full new state pension is at 221lbs or thereabouts. You get it weekly and most people are not able to really maintain their lifestyle on that amount. And if you look at private pension schemes as well, let's say you're a local doctor, you work in a limited company or you work in a sector that makes you ineligible. Financial pension contributions. A private pension could be worth considering. And while they offer higher returns, potential for higher returns, they also come with investment risk. So it could also be less returns. Market fluctuations can affect your returns on your nhs, on your private pension, and there's no guarantees. So some may argue that they will do alternative investments like real estate, crypto and all of that. But you know as well as I do that they have their own issues and risk. So in conclusion, weigh the pros and the cons carefully. But before you make any decisions, if you are unsure, speak to a financial advisor and they can give you some more insight on how to proceed. Now, if you like to find a financial advisor that has been screened and vetted and used by other doctors and healthcare professionals, head over to moneywisedoctor.com and check for one. Now, let's continue this conversation in the comments below. What's your opinion? Are you going to leave the NHS pension? Are you currently in the NHS pension? Do you not care about, you know, the benefits, or do you think that you can get a better pension, you know, elsewhere? I'd like to hear your opinion. And if there are other topics you like for me to discuss here on moneywise doctor Platform, please pop them in the comments and put all your opinions in the comments as well. I'll be reading them and I'll be giving responses to any questions you have. Thank you for joining me and see you next time.