Updated: Feb 7
I started to work as an NHS nurse in the UK in my early 20s. When I received my first salary, I was dumbfounded at how much I had paid for my pension contribution. Being young and unbothered then, I thought I wouldn't need it as I had a lot of "time" to save for retirement. I opted out of the NHS pension to gain an extra £250 in my take-home pay. Life passed by swiftly, and seven years later, I realised how much "free money" I had lost for stopping my workplace pension.
Pension is a tax-efficient way to save for retirement because your contribution will be taken on your net pay before tax. There are different types of pensions - state, workplace and personal or private pensions.
The state pension is the standard pension from the government and comes from your National Insurance contributions. You must have paid to your NI at least ten years and have reached state pension age (currently 66 but will increase to 67 between 2026 to 2028) to be eligible to receive this pension. You can check your state pension age on the UK government's website https://www.gov.uk/state-pension-age. You must have paid NI contributions for 35 years to get your full state pension. The fewer years you pay, the lesser state pension you will get.
Your employer arranges the workplace pension. You contribute with your salary, which is deducted before tax as a form of tax relief. In return for saving for retirement, your employer will also make contributions to a pension scheme, and the amount will depend on your organisation. NHS is known for its lucrative pension contribution, as it pays 20.6% extra to meet the cost of your pension benefits. The percentage of your contribution will depend on your pensionable earnings. The amount you will pay is based on your annual salary, meaning that part-timers whose income is pro-rata may pay less and receive less from the employer.
A private pension is a defined contribution, and you usually set this up yourself. You can seek advice from a financial advisor or start a Self-Invested Personal Pension (SIPP) using investment platforms. You will also get a 20% tax relief through a government top-up for your basic salary. You can get 20% more, for a total of 40% tax relief, if you're a higher-rate taxpayer.
Agency and permanent bank nurses can benefit from this type of pension as they don't have a workplace pension being self-employed. You have the flexibility on how much you will contribute to your pension. The amount you will get on your retirement will depend on how much you have paid to your pot, the performance of your investments and the associated fees. It is worth checking the costs of investing in your chosen platform and the fund you will put your pension money into. As this is a long-term plan, choose an investment provider that will suit your needs in the future and a low-cost, diversified fund. Research the impact of their fees, as it can impact your investment returns.
The earlier you prepare for retirement, the less catching up you need to do in the future. Aside from the money you will get every month when you decide you wouldn't want to work anymore and enjoy your retirement, a pension has additional benefits. Here are the reasons why I joined the NHS pension scheme again after seven years of opting out.
I can't stress enough how important it is to save for retirement. My employer's contribution at the top of my monthly payment can build up over the years. If you have a SIPP, take advantage of the compound interest of your investment and the tax relief you can get. Never leave it too late to build what you need later in life. When you stop working, your pension can pay the bills and maintain the lifestyle you want in your golden years.
The NHS scheme will provide lifetime pensionable pay, which the government guarantees. Nobody knows what the future holds, but I'm optimistic that I can get my monthly pension by the time I retire. It can also relieve our children from providing financial aid to us when we no longer work so they can also focus on building their lives.
Depending on the scheme that you are in, you can withdraw a retirement lump sum tax-free. You can use this on all sorts of things that depend on your needs. It can pay for your remaining mortgage, your dream holiday, investing in low-risk bonds or funds, and your children's university fees. The possibilities are endless, but make sure you spend it wisely.
NHS as an employer also contributes to your pension. Imagine you increase your savings with free money. The amount you contribute will depend on your final annual salary. So for part-time employees, the percentage of your contribution will depend on your pro-rata salary. See the table below to know how much you will pay based on your annual income.
You will also get life assurance and death benefits for your loved ones. If you pass away, your family can get a lump sum and pension for partners and dependent children. They will not be left with so much financial burden if we leave them.
If you become too ill to work, you may have to retire early. NHS pension members can apply for ill-health retirement pension.
You can plan when to take your pension and options for managing your retirement money. Depending on your scheme, you have the flexibility on when to take your pension whilst working. You can also take it before the average pension age, but it will be reduced as it will be paid to you earlier and longer.
Retirement is inevitable; the younger we start saving for retirement, the more our pension pot will grow. The compound interest from a personal pension is also one of the world's wonders for growing your money. Saving enough for the time we decide to stop working can also mean lesser stress in our later life. This way, we can focus on enjoying the "switch off" mode from juggling work and life and find more meaningful activities and pursuits on the day we will have more time on our hands.