The NHS pension explained

Introduction

The NHS pension is a scheme you will be enrolled into when you start working as a medic, so it’s a good idea to know how it works.

In this article, Dr Kiran Morjaria talks us through pension contributions and tax relief, as well as other investment options that can be considered when preparing for retirement.

Starting work

When you start working as a doctor, you will notice on your payslip that part of your pay is taken each month under the title of ‘NHS pension’.

When I noticed this, I remember feeling like I was being robbed, particularly as I had no understanding of, or desire for, a pension. Who in their 20s does, right?

The flip side to this is that money is being accumulated for me to access when I no longer work for money. This understanding gave me a whole new perspective on my pension.

Your pension can be accessed when you retire, whether that be through old age or ill health. The amount you put into your pension depends on the amount you earn. As an NHS FY1 doctor, between 7.1% to 9.8% of your income will be added to your pension, depending on which country you practice in.

The NHS Pension Scheme

There are many good things about the NHS Pension Scheme. For example, the pension amount is taken from your earnings before income tax is applied. This means that the amount of income tax you pay on your earnings becomes less.

Also, the more you earn, the more income tax you save on your pension contributions, which becomes more important as you continue training, start to earn more and fall into higher income tax brackets.

With your pension being exempt from these higher tax brackets, you’ll pay even less in income tax compared to if you didn’t have an NHS pension.

When can you draw your pension?

The NHS pension starts paying out at state retirement age. Currently, you can take voluntary early retirement from the age of 55. However, if you choose to retire earlier than this, you won’t receive the full amount in your pension pot.

In essence, the earlier you retire, the lower the percentage of your pension that is available to you. This decreases incrementally depending on how many years early you take it.

Giving yourself more security

The NHS pension isn’t the only thing you should rely on when you retire. You could consider other options, like private pensions, ISAs, stocks and shares, and property investments to supplement your income.