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NHS facing ‘epidemic’ of pension opt-outs

2 Jan 2019 By Maggie Baska

Industry experts call on health service to act after almost 250,000 staff quit workplace scheme in three years

Experts have called on the NHS to take action to counter an ‘epidemic’ of pension opt-outs, and avoid large numbers of health service staff risking poverty in their retirement. 

A recent Freedom of Information (FOI) request by the Health Service Journal (HSJ) revealed a quarter of a million (245,561) NHS workers opted out of their workplace pension scheme between 2015 and 2017. Royal London calculated this figure represented around 16 per cent of the scheme’s active membership. 

The FOI also found 102,755 NHS staff members opted out of their scheme in 2016, representing a 78 per cent increase on the previous year. 

The opt-out rate of 16 per cent is notable and contrasts with equivalent figures of 3.4 per cent among teachers, 1.45 per cent for the civil service and just 0.04 per cent for the Armed Forces, according to analysis from Royal London.

Steve Webb, director of policy at Royal London, said the NHS needed to take urgent action to “tackle this epidemic of pension opt-outs”. 

“All public sector workers have faced a squeeze on their take-home pay in recent years, but it is in the NHS where this has translated into a shockingly high number of people leaving the pension scheme,” Webb said. 

Calculations by Royal London showed an NHS worker earning £25,000 per year currently has to make a pension contribution of 7.1 per cent before tax relief under the terms of the NHS scheme. Opting out would save £1,420 annually after tax relief, but replacing the same amount of pension provision in retirement could cost around £13,000 at current rates. 

Webb called on the NHS to find “better ways to communicate the value” of its pension scheme, otherwise large numbers of staff risked a “retirement in poverty”. 

Royal London added that public sector workers in defined benefit pension schemes were enrolled at the full auto-enrolment rate “overnight” whereas automatic enrolment in private sector defined contribution schemes had “been phased in very gradually”.

Danny Mortimer, chief executive of NHS Employers, told HSJ there was concern NHS staff were considering leaving their pension scheme, “particularly senior clinical staff”. He said employers would like to see greater flexibility in the scheme to “allow staff to differently manage contributions to reflect and support their personal priorities”.

HSJ found NHS workers aged 26-35 were the most likely to opt out, with 30,000 people in this age group choosing to do so in 2017. 

One 32-year-old NHS finance manager told the publication they left the scheme when they were 28 because they had a young family and needed to “put a hold” on their future as “retirement is 35-plus years away”. 

Nathan Long, senior analyst at Hargreaves Lansdown, told People Management many workers “struggle to make ends meet” when faced with higher pension contribution rates, and while the rise in minimum contributions due this April would not affect the NHS immediately, he was concerned future increases could lead to further opt-outs. 

“There is an expectation that we won’t see a huge increase in opt-out rates, but I expect shortly after [April] many industry experts will call for higher contribution rates,” Long said. “While workers might need to pay more, you can only force people so far before they stop.” 

Long said employers may experience “uncertain times with Brexit looming”, and it would be a “bit of a risk” for the government to increase their pension scheme contribution rates, though he could foresee a point where the overall rate reached 12 per cent.

In April 2018, minimum auto-enrolment contribution rates rose from 2 per cent to 5 per cent, with the proportion employers are obliged to contribute increasing from 1 per cent to 2 per cent. This April, the contribution rate will increase to 8 per cent, with the employer minimum contribution rising to 3 per cent. 

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