According to figures from Quilter, there has been a significant increase in the number of NHS employees opting out of their pensions due to financial constraints.
In the last year alone, 66,749 individuals stopped contributing to their pensions, citing affordability issues or other financial priorities. Opting out of a workplace pension scheme may increase your take-home pay in the short term by releasing the earnings you contribute, but this would also mean taking a pay cut in the long term. Any income freed up by opting out would also be taxed.
So, what are the disadvantages of opting out?
You need some form of additional income in retirement.
Planning for retirement is crucial to ensure financial stability in the future. Relying solely on the State pension, approximately £10,600 per year after 35 years of work, may not be enough to support a comfortable retirement. It’s essential to make personal provisions to avoid financial struggles when retiring.
NHS pension is a guaranteed income for life
Once you retire, the NHS Pension will provide you with an annual income for the rest of your life, regardless of how long you live. This source of income is highly secure as the government supports it. Your retirement income from the NHS Pension will increase in most years to keep up with the rising cost of living.
Significant employer contributions
Your NHS Pension scheme contributions are from you and your employer, as required by law. As a result, your future income is expected to be higher than other pension schemes.
Impact on dependent benefits
Leaving the NHS Pension plan can impact your retirement earnings and your dependents’ financial security. Remaining in the scheme means that your legal spouse, registered civil partner, qualifying scheme partner, and dependent children may receive an increased income in the event of your death, providing them with added financial stability.
Potential loss of lump sum death benefits
If you have an NHS Pension, your dependents may receive a tax-free lump sum payment upon your death in addition to dependent income. It’s important to note that opting out could lead to reduced benefits for your loved ones.
No investment risk when building your NHS Pension’ pot.’
The rules of the NHS Pension dictate how retirement income is calculated and determined. You don’t need to concern yourself with the performance of the stock market or the state of the economy.
You can build up an additional NHS Pension.
The NHS Pension scheme has an option known as Additional Voluntary Contributions (AVCs), which allows you to contribute to a separate fund to increase your retirement income. This can be especially useful if you receive bonuses or inheritances.
What can I do instead of opting out?
If you are having difficulty covering your expenses, consider reaching out to your employer, or friends & family, to seek assistance. Also, it may be helpful to thoroughly review your finances and find areas where you can reduce your spending.