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Where Taxpayers and Advisers Meet

NHS 2015 Pension Scheme overpayment

Jupiter01
Posts:51
Joined:Tue Jul 11, 2023 8:11 pm
NHS 2015 Pension Scheme overpayment

Postby Jupiter01 » Fri Oct 06, 2023 2:21 pm

My wife works part time for the NHS and is entitled to join their 2015 CARE scheme. She has been told that she can contribute 5.1% and the employer will then add their contribution to this. I think it's around 14% for the employer.
I wanted to check if there is an option to pay an additional contribution from the employee and does this have the effect of growing the pension pot? Would her annual pension amount then be a 49th of her total contributions e.g. 5.1% plus any overpayment?

Thanks in advance.

D&C
Posts:149
Joined:Mon Nov 25, 2019 11:35 pm

Re: NHS 2015 Pension Scheme overpayment

Postby D&C » Fri Oct 06, 2023 10:15 pm

Your wife isn't building up a pot of money.

Whilst a member of the 2015 CARE scheme she accrues a pension entitlement under the scheme rules. Whether the employer pays 1.4%, 14%, or 100% is of no relevance to this as her pension is based on the scheme rules, not the contributions.

She may be able to buy additional (defined benefit) NHS pension or add to a defined contribution pension but the amount accrued in the 2015 CARE scheme is what it is.

A fairly generous 1/49th with a very nice inflation uplift each year (CPI +1.5% I think).

So if she earns say £20k she will contribute £1,020 (probably a real net cost of £816 after tax relief) and in return earn a pension of £408 😃

Jupiter01
Posts:51
Joined:Tue Jul 11, 2023 8:11 pm

Re: NHS 2015 Pension Scheme overpayment

Postby Jupiter01 » Fri Oct 06, 2023 10:27 pm

Thanks for getting back to me.
Also, my wife earns 6k a year which means that she doesn’t pay tax. Now if she had a SiPP, she would automatically get a tax relief. I don’t think this is the case with the NHS pension. She will not be getting tax relief on her contributions. Is that correct?

D&C
Posts:149
Joined:Mon Nov 25, 2019 11:35 pm

Re: NHS 2015 Pension Scheme overpayment

Postby D&C » Fri Oct 06, 2023 10:36 pm

No, she won't get tax relief if her only taxable income is £6k.

But that is changing from April 2024 and HMRC will be responsible for giving her a payment which equates to the basic rate tax relief she is missing out on.

Personally I would say the NHS scheme is hard to beat even without tax relief or a payment from HMRC and I presume she has no plans on leaving such a generous scheme.

https://www.gov.uk/government/publications/low-earners-anomaly-pensions-relief-relating-to-net-pay-arrangements/pensions-relief-relating-to-net-pay-arrangements

ben_power
Posts:81
Joined:Tue Feb 27, 2018 8:34 pm

Re: NHS 2015 Pension Scheme overpayment

Postby ben_power » Thu Oct 12, 2023 12:25 am

Just to reconfirm the key facts here....

Unlike most pension decisions, in this situation, tax relief bears little relevance to the bigger picture and bigger benefit.

In the example D&C provides, based on a salary of £20,000 your wife's contribution of 5.1% per year (£1,020) would provide her with an annual income of £408 for the rest of her life. As D&G also states, this will increase each year at a rate of CPI + 1.5% (taken from the September CPI figure but applied the following April).

To put the income in perspective, if the same £1,020 was invested into a SIPP, not only would she be taking onboard all the investment risk but the purchasing power of that contribution wouldn't come remotely close to achieving the same income in retirement. The NHS pension is significantly more attractive.

She can contribute more as well. She can contribute to an AVC (DC pot, but not as flexible as a SIPP and other than being cheap is unlikely to be as attractive as a SIPP). She can also purchase additional income through the DB scheme and she can request quotes for this, I believe this comes in chunks of £250 or £500 additional income per year.


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