Increasing numbers of NHS staff opt out of pension scheme

According to new data stemming from a freedom of information request made by Quilter, 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.

During the 2018-19 tax year, the number of NHS staff leaving the scheme stood at 41,219.

The FOI request revealed that over the past four tax years an average of 44,843 NHS staff have opted out of the pension scheme per year, totalling close to 180,000 staff. 

Many of those who opted out usually opted back in. 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 that doctors were reducing their hours due to these complex rules impacting their retirement savings,” Quilter said.

Many of those opting out may also be looking to mitigate against breaching the lifetime allowance, which was frozen in the most recent budget at £1,073,100. 

“There is a common misconception that breaching the LTA means people should exit the NHS Pension Scheme, whereas many could still benefit significantly by staying in the scheme,” Quilter said.

“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,” the wealth manager warned. 

A recently released Public Accounts Committee report criticising the Treasury’s implementation of public sector pension reforms drew attention to the high opt-out rate among younger NHS staff in particular, as reported by Pensions Expert.

The committee’s report noted the complex and “punitive” interaction between the NHS scheme and tax system, which it said — drawing from survey data by the British Medical Association — led to doctors reducing working hours, and a large number either opting out of the scheme or else retiring early.

The BMA is now using the report to call for further changes to the NHS Pension Scheme in order to tackle the medical staffing crisis.

Speaking about the findings of Quilter’s research, Graham Crossley, NHS pension specialist at the company, said: “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 during the pandemic, and it is worrying and sad to see that in the past tax year significantly more people in the health service felt that leaving the NHS Pension Scheme was their best option.”