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NHS Pension Scheme May Not Pay as Much as You Think

Oftentimes, the only thing getting people through the years of hard work in their career is the light at the end of the tunnel that is retirement. It’s a time for relaxing, traveling, spending time with your loved ones, and finally having the time to achieve the dreams you never could whilst working. That is why it’s so important for you to have a retirement savings plan set up as early as possible so you can maximise the contributions you can make in your lifetime to build a robust savings pot.


This does not constitute advice and advice should be sought in all instances before acting on it.


Just as with any other solid financial plan, you need to ensure your savings are diversified and you’re not putting all your eggs in one basket.

Many professionals in the dental and medical field may be relying solely on their NHS Pension scheme to see them through their golden years, but that would be a grave error on their part.


NHS Pension Benefits – are they enough?

It’s true that the NHS Pension scheme has amazing fringe benefits you won’t find elsewhere — Ill Health Retirement Pension, Life Cover (death in service), and uplifts for your spouse’s pension, just to name a few. But the plans are not without their drawbacks.

You may have to worry about potential tax implications, early withdrawal penalties of up to 5% per year, and contributions set as high as 14.5%. Coupled with the appeal of personal pensions and new pension freedoms, this might make you question whether or not the NHS plan is even worth it.


Early in life

If you begin contributions when you first enter the workforce in your 20s, you’re well ahead of the savings game and the scheme is most certainly favourable.

Comparing contributions into a personal scheme and an NHS scheme by the time you reach state pension age at 68 makes this case clear.

In order to net £2,356.25 per year in retirement on a £30,000 salary into the NHS Pension Scheme, you would need to contribute almost 30% of your income to a personal pension to reach the same amount that a 9.3% NHS Pension contribution would net you over the years.


Early to mid-life

If you’re paying into pensions in your 30s and are hoping to possibly retire a little earlier than state pension age, you are looking at paying approximately 43% of your pay into a personal pension in order to get the same amount (£1,920.91) that an NHS pension would provide.

If you are earning around £45,000, this equates to a whopping 34% more that you would need to contribute to a personal pension than the 9.3% needed for you to equal the amount saved in the NHS.


Later in life (but not too late…)

Assuming an income of £80,000 when you’re in your 40s, and a desire to retire a few years earlier than state pension age, you will need to pay more than 41% of your income in order to get a £1,558.74 annual pension.

This is compared to the 13.5% that the NHS scheme requires – you are looking at contributing almost 28% more of your income to get the same outcome.


Other factors

Keep in mind that you may reach your lifetime pension allowance limit which will have an impact on your tax situation and overall financial circumstances. We highly encourage working with experts in the area to ensure you are making the right choices for your retirement.

The answer to the question of the value of the NHS scheme might be surprising, given the perceived downsides, and largely dependent on when you start paying into the scheme.

All comparisons assume you have either nothing or very little held in previous NHS Pension Schemes and you are a member of the 2015 NHS Pension Scheme.

It’s worth noting that you should keep an eye on annuity rates as these will greatly affect the worthiness of all retirement savings plans.

All in all, you’ll discover the NHS scheme is absolutely still worth the effort and should be a pillar of your retirement plan.

To get started on building a quality retirement savings plan, contact the experts at Dental & Medical Financial Services today.

We’ll help you to coordinate NHS pensions, personal pensions, company plans, and other wealth building endeavours into a plan that works for you.


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Dental & Medical Financial Services have been helping doctors and dentists to build and protect their wealth, whilst saving tax for over 25 years.
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