Should I join the NHS pension scheme at age 60? I’ve started working full-time and plan to continue for as long as I can
I am just gone 60 and I have worked for the NHS for six years. I didn’t join the pension scheme as I was only part-time.
I will continue to work as long as I can. Would it be worth me joining the scheme now that I am full time?
Steve Webb says although the NHS pension plan is not as generous as it used to be, it remains one of the best workplace schemes
Steve Webb replies: Although the NHS pension scheme is not as generous as it used to be, it remains one of the best workplace pension schemes and there is a strong case for you to consider joining it.
Along with other public sector pension schemes, the NHS pension scheme offers something which has almost disappeared for private sector workers – a guaranteed level of pension when you retire.
As a member of what is called a ‘defined benefit’ pension scheme you build up a guaranteed amount of pension for each year of service, to be paid when you reach pension age.
This pension will be paid as long as you live, will benefit from annual increases for inflation and pays something out to a surviving spouse after you die.
You can also take part of your pension rights in the form of a tax-free lump sum if you prefer.
One of the reasons that the NHS pension scheme represents such a good deal is that your employer is meeting a large part of the cost.
Steve Webb: Find out how to ask the former Pensions Minister a question about your retirement savings in the box below
Although you are paying in yourself (at a rate which depends on your earnings), the employer is paying in much more.
Currently the NHS contributes just over 20 per cent of your salary when you join the pension scheme, and that is money that you miss out on if you don’t join.
You also get tax relief on your contributions, so the headline contribution rate that you may see quoted overstates the actual cost to you of being a member of the scheme.
For example, if you pay income tax at the basic rate of 20 per cent, and your contribution rate into the NHS pension scheme is 10 per cent of your gross pay, this will only cost you 8 per cent net, because your pension contributions are deducted from your taxable income when your income tax is worked out.
It is very regrettable that significant numbers of NHS staff have opted out of the NHS scheme in recent years, particularly younger and less well paid staff.
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This is partly because of the negative publicity around changes to the NHS scheme which have meant that NHS staff now have to contribute more than in the past and have to wait longer to get their pensions.
But the crucial point is that even after all of these changes, it remains one of the best schemes around.
There has also been some negative publicity around higher earners such as GPs and consultants opting out of the NHS pension scheme.
This is generally either because they built up relatively large lifetime pensions which are hitting lifetime tax limits or because they have relatively high annual incomes and are hitting annual tax limits on pension contributions.
But unless you are in either of those two situations, if you can afford to join the NHS pension scheme it is hard to think why you should not do so.
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So what are the advantages of sticking with the scheme? Read more here.
ASK STEVE WEBB A PENSION QUESTION
Former Pensions Minister Steve Webb is This Is Money’s Agony Uncle.
He is ready to answer your questions, whether you are still saving, in the process of stopping work, or juggling your finances in retirement.
Since leaving the Department of Work and Pensions after the May 2015 election, Steve has joined pension firm Royal London as director of policy.
If you would like to ask Steve a question about pensions, please email him at firstname.lastname@example.org.
Steve will do his best to reply to your message in a forthcoming column, but he won’t be able to answer everyone or correspond privately with readers. Nothing in his replies constitutes regulated financial advice. Published questions are sometimes edited for brevity or other reasons.
Please include a daytime contact number with your message – this will be kept confidential and not used for marketing purposes.
If Steve is unable to answer your question, you can also contact The Pensions Advisory Service, a Government-backed organisation which gives free help to the public. TPAS can be found here and its number is 0800 011 3797.
Steve receives many questions about state pension forecasts and COPE – the Contracted Out Pension Equivalent. If you are writing to Steve on this topic, he responds to a typical reader question here. It includes links to Steve’s several earlier columns about state pension forecasts and contracting out, which might be helpful.
If you have a question about state pension top-ups, Steve has written a guide which you can find here.
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