Number of staff opting out of NHS pension scheme up 22 per cent last year

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New data from Quilter shows that the number of people who opted out of the NHS pension scheme increased by nearly 10,000 in the 2019/20 tax year to 50,399 people.

A Freedom of Information request from Quilter shows that over the last four tax years on average 44,843 NHS staff opted out of the pension scheme per year totalling close to 180,000 staff.

Many of those who have opted out will also be opting back in again, referred to as ‘hokey cokey’. This is a mechanism often used to try and reduce pension growth for the year to avoid being hit by the Annual Allowance tax charges.

The Annual Allowance charge has been in the spotlight for a number of years after it was revealed doctors were reducing their hours due to these complex rules impacting their retirement savings.

Many of those opting out may also be looking to mitigate against breaching the Lifetime Allowance (LTA), which was frozen in the most recent budget at GBP1,073,100. There is a common misconception that breaching the LTA means you should exit the NHS pension scheme, whereas many could still benefit significantly by staying in the scheme.

When members opt out, they expose themselves and their families to a greater financial risk in the event of death or ill health, as these benefits are reduced for a deferred member.

Graham Crossley, NHS pension specialist at Quilter, says: “This data adds to the argument that we need to take a very careful look at the current pension tax system for the public sector and see whether it is still fit for purpose. The NHS has played a huge role in helping the country keep going during the pandemic and it is worrying and sad to see that in the last tax year significantly more people in the health service felt that leaving the NHS pension scheme was their best option due to a complex tax system that penalises the right behaviours.

“Opting out of the scheme may not be best course of action and can have a serious impact on someone’s pension provision, as well as their family’s financial protection, so is therefore not a decision to be taking lightly and it is worth first seeking professional financial advice.