Record numbers of workers are leaving the NHS pension scheme amid the cost of living crisis.
More than 75,000 NHS staff pulled out of the scheme, considered one of the most generous in the country, in the last financial year, including 25,000 aged under 30, according to data obtained under freedom of information laws. The figure is an increase of 67 per cent over the past four years, or 40 per cent once a growing workforce is taken into account. More than 10 per cent of those with less than £20,000 in pensionable pay opted out.
The NHS scheme, despite having moved from a final salary to a career average model, represents a far more attractive structure, with higher employer contribution, than almost any private pension scheme. The government contribution is 20.68 per cent of earnings and the employee contribution rate is a sliding scale depending on pensionable pay, from 5.1 per cent for earnings under £13,246 to 13.5 per cent for those on more than £75,633.
Tom McPhail, from the financial consultancy the lang cat, says the low pay of many NHS workers can make opt-outs alluring in the short term. “You’ve potentially got a crazy situation where a nurse is having to use food banks and can’t afford to live now, and then will actually be better off in retirement than they are today, because of the quality of their pension.”
The Department of Health and Social Care, which runs the scheme through its arms-length body the NHS Business Services Authority, says membership levels are high and participation is a personal choice.
The number of opt-outs rose, however, from 3 per cent of the 1.5 million eligible for the scheme in the 2018-19 financial year to 4.2 per cent of the 1.8 million members in 2022-23. The proportions are far higher among the lower paid. Those on pensionable pay of more than £100,000, who would probably only leave the scheme for tax reasons, represent less than 1 per cent of opt-outs. “It’s a hundred per cent inflation proof, related to your salary, guaranteed by the taxpayer and can never be reduced,” Baroness Altmann, a former pensions minister, said. She said most workers did not realise how generous the pension was.
Altmann proposed shortening the length of time for which opt-out from auto-enrolment was effective, from its current three years. “You could re-enrol anyone who has opted out more frequently, perhaps every year or every two years, so they’re not out for long, and then they have to make another conscious decision, by which time maybe their salary is better or their circumstances are better.”
McPhail suggested keeping struggling employees in the pension scheme by offering a “halfway house”. He said: “The employer could go for a compromise scheme where employees only pay in 1 or 2 per cent and employers put in 8 per cent, and it becomes a money purchase pension. In theory that might be a better compromise than that employee opting out all together.”
Dr Vishal Sharma, who chairs the pensions committee at the British Medical Association, said: “The trend of pensions opt-outs among doctors is extremely concerning. Doctors now have lower pension scheme membership than non-medical NHS staff. Worryingly over the last ten years the biggest fall in scheme participation has been seen amongst the most junior medical staff. This reflects that they, along with consultants, have seen the worst pay erosion of any group not only in the NHS but across other sectors, making the need to address pay erosion an even more urgent concern.”
The Department of Health said the scheme “is one of the most generous in the UK, providing retirement benefits for hardworking staff after a lifetime of service and encouraging participation by providing discounted contribution rates to lower earners”.