ChatterBank1 min ago
NHS pension
11 Answers
I've recently joined the NHS Pension scheme (final salary). I paid into a stakeholder pension with Scottish Equitable for 3 years (invested funds were IT and property). Would it be wise to transfer this into the NHS scheme?
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(Part 2)
A further important consideration is your age. If you are over 50, and your stakeholder pension has a value of �16,000 or less (known as a �trivial amount� for pension annuity purposes), you can get hold of the full amount (with 25% of it tax free), to spend as you please - now. This figure of �16,000 is increased annually, so if you are not yet 50, it is highly likely that you will be able to get hold of the complete amount once you reach 50 (this becomes age 55 in 2010).
Personally, I would go for the last option, leaving the money in the stakeholder pension until I could have it all, (getting hold of all the money for myself), rather than having to buy a pension with my money. But remember the government can always move the goal posts at anytime, and deny you access to your money.
A further important consideration is your age. If you are over 50, and your stakeholder pension has a value of �16,000 or less (known as a �trivial amount� for pension annuity purposes), you can get hold of the full amount (with 25% of it tax free), to spend as you please - now. This figure of �16,000 is increased annually, so if you are not yet 50, it is highly likely that you will be able to get hold of the complete amount once you reach 50 (this becomes age 55 in 2010).
Personally, I would go for the last option, leaving the money in the stakeholder pension until I could have it all, (getting hold of all the money for myself), rather than having to buy a pension with my money. But remember the government can always move the goal posts at anytime, and deny you access to your money.
(Part 1)
Too many unknowns to give a sensible/reasoned answer � but consider the following:-
Say your stakeholder pension has a current value of �10,000 (ignoring any gains above inflation until you reach age 65), this will buy you an annual pension of around �300 (index linked).
You will need to ask the NHS pension scheme how much this amount (�10,000 or whatever) will �buy you� in their scheme. Normally this will be expressed as extra years service in the NHS scheme.
Lets say it will buy you an extra year and your current salary is �20,000 p.a. (and say each year in the scheme earns 1.5% of final salary, towards your pension). In the above example, your NHS pension will increase by �20,000 x 1.5% = �300 p.a.
In my examples above (with the numbers I have used), both have resulted in the same pension gain (�300 p.a.) � however it is likely that the result of the �real� calculation would result in a lower value for the NHS pension. But things are not that simple � your salary increases within the NHS may well exceed inflation, and often company pension schemes have other benefits, making the transfer to the NHS the better long term bet.
Bear in mind that all the above numbers are approximations, but show the type of calculations you will need to make to compare your options.
Too many unknowns to give a sensible/reasoned answer � but consider the following:-
Say your stakeholder pension has a current value of �10,000 (ignoring any gains above inflation until you reach age 65), this will buy you an annual pension of around �300 (index linked).
You will need to ask the NHS pension scheme how much this amount (�10,000 or whatever) will �buy you� in their scheme. Normally this will be expressed as extra years service in the NHS scheme.
Lets say it will buy you an extra year and your current salary is �20,000 p.a. (and say each year in the scheme earns 1.5% of final salary, towards your pension). In the above example, your NHS pension will increase by �20,000 x 1.5% = �300 p.a.
In my examples above (with the numbers I have used), both have resulted in the same pension gain (�300 p.a.) � however it is likely that the result of the �real� calculation would result in a lower value for the NHS pension. But things are not that simple � your salary increases within the NHS may well exceed inflation, and often company pension schemes have other benefits, making the transfer to the NHS the better long term bet.
Bear in mind that all the above numbers are approximations, but show the type of calculations you will need to make to compare your options.
My reaction would have been to have made the same comment as bednobs.
The reason is that your stakeholder pension is worth a fixed sum of money (defined contribution) whereas your NHS pension is a defined benefits scheme that gives you a sum of pension based on your final salary on retirement and the number of years you have worked there (you usually need 40 yrs of service to accrue the maximum benefits). You usually cannot add benefits to such schemes.
If you are saying the NHS will let you transfer in, they must be offering you a number of extra years' worth of benefits (i.e. as if you had worked there longer than you have). So for a start you need to understand how many extra years they are offering you.
As to whether it is a good idea, I cannot advise you - only a qualified and regulated person under the FSA can do that. You would have to pay for such advice and the person will fully explain the options and potential upsides / downsides to you.
The reason is that your stakeholder pension is worth a fixed sum of money (defined contribution) whereas your NHS pension is a defined benefits scheme that gives you a sum of pension based on your final salary on retirement and the number of years you have worked there (you usually need 40 yrs of service to accrue the maximum benefits). You usually cannot add benefits to such schemes.
If you are saying the NHS will let you transfer in, they must be offering you a number of extra years' worth of benefits (i.e. as if you had worked there longer than you have). So for a start you need to understand how many extra years they are offering you.
As to whether it is a good idea, I cannot advise you - only a qualified and regulated person under the FSA can do that. You would have to pay for such advice and the person will fully explain the options and potential upsides / downsides to you.
Jenga,
A pension is designed to provide for the person paying into the pension once they retire, most occupational schemes have a provision to pay a lesser amount to a surviving dependent (normally a spouse/partner). I would be surprised if the NHS pension did not include such a provision.
When buying an annuity (using the stakeholder pension value), you can choose whether your spouse/partner will receive some of your pension, should you precede them. There is a cost to this, as the pension company may be paying out longer, since it has to wait for both persons to have died to stop paying out.
The beauty of all pensions (as far as the pension company is concerned), is that once you die, they get to keep the pot of money used to pay your pension.
Take a male aged 65 year old with a pension pot of �200,000. This money will currently buy him an annual pension of approximately �14,000 for life (fixed, not increasing with inflation). The pension company is paying a generous 7% interest on the capital sum � which they get to keep when the pensioner dies. That�s why pension companies have large prestigious offices and can afford to pay their executives 7 figure salaries.
A pension is designed to provide for the person paying into the pension once they retire, most occupational schemes have a provision to pay a lesser amount to a surviving dependent (normally a spouse/partner). I would be surprised if the NHS pension did not include such a provision.
When buying an annuity (using the stakeholder pension value), you can choose whether your spouse/partner will receive some of your pension, should you precede them. There is a cost to this, as the pension company may be paying out longer, since it has to wait for both persons to have died to stop paying out.
The beauty of all pensions (as far as the pension company is concerned), is that once you die, they get to keep the pot of money used to pay your pension.
Take a male aged 65 year old with a pension pot of �200,000. This money will currently buy him an annual pension of approximately �14,000 for life (fixed, not increasing with inflation). The pension company is paying a generous 7% interest on the capital sum � which they get to keep when the pensioner dies. That�s why pension companies have large prestigious offices and can afford to pay their executives 7 figure salaries.
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