Whether it’s through personal choice or a change of job, leaving the NHS Pension Scheme isn’t a decision that should be taken lightly.
If you do decide to leave the scheme though, you’ll need to work out what to do with the benefits you’ve built up.
Here we’ll look at some of the options available to you if you leave the NHS Pension Scheme, and the implications if you choose to re-join later.
Why you might leave the NHS Pension Scheme
The NHS Pension Scheme (particularly its older sections) can offer a range of generous benefits to its members. So if you’re thinking about leaving the scheme, it’s well worth considering the benefits you might be giving up. That said, there may be a few reasons why you want – or need – to leave the scheme, whether that’s temporarily or for good.
The most obvious reason for leaving the NHS Pension Scheme is a change of job. If you’ve found new employment outside of the NHS and you’ve been a member of the NHS scheme for more than two years, you should be able to defer your pension. That means you’ll just leave your benefits in the scheme and draw the pension once you reach pension age.
It’s highly unlikely you’ll be able to transfer your benefits to your new pension scheme, as transferring out of a defined benefit scheme is heavily restricted.
Other reasons for leaving
Even if you’re not changing jobs, there might still be other reasons you’re considering opting out of the NHS Pension Scheme.
With member contributions fixed according to salary, there’s no option to temporarily reduce your contributions. So, if you’re in need of a short-term cashflow boost, leaving the pension scheme altogether may seem the only option.
Historically, high-earning members of the NHS Pension Scheme have also seen leaving the scheme as the only way to avoid the high tax charges that come with a breach of the annual allowance.
In both cases though, there are usually more cost-effective ways to solve these challenges than leaving the NHS scheme. To help you find a better way forward, you might want to discuss your situation with a Specialist Financial Adviser from Wesleyan Financial Services.
Deferring your NHS pension benefits
Whether you’re leaving the NHS for another job or opting out of the scheme for a different reason, you may have the option to leave your benefits in the scheme and collect them when you retire. This ‘deferred pension’ option is available to members who have at least two years of qualifying membership.
If you leave the scheme before completing two years of membership, you’ll only be able to defer your pension benefits if you’ve transferred a personal pension into the NHS scheme prior to leaving.
When you defer your benefits, your pension effectively sits and waits for you to reach retirement age. It will, however, be adjusted in line with inflation each year, to keep pace with rises in the cost of living.
The benefits can be accessed from your Normal Pension Age – which is 60 for members of the 1995 Section, 65 for members of the 2008 Section, and 65 (or your state pension age if that’s higher) for members of the 2015 scheme.
In some cases, you might be able to draw your deferred benefits earlier, when you reach the relevant minimum pension age for your scheme.
The forms to claim your deferred benefits are available from the NHS Pensions hub.
Transferring your benefits
On some very rare occasions, you may be able to transfer your benefits out of the NHS scheme. However, there are tough restrictions on this, as the NHS doesn’t allow transfers to any pension scheme that offers flexible benefits (which most do).
You therefore can’t transfer your NHS benefits to a personal pension, SIPP or to a defined contribution workplace pension. And, while it is theoretically possible to transfer to another defined benefits scheme, most do not accept transfers in from the NHS scheme.
For these reasons and others, Specialist Financial Advisers from Wesleyan Financial Services can’t advise on transfers out of a defined benefit scheme – but if you’d like to discuss your other options, you can book an appointment here.
Refund of contributions
If you leave the NHS scheme before completing two years of qualifying membership, you’re entitled to apply for a refund of the contributions you’ve made, rather than deferring or transferring your benefits. You can do this via the RF12 form, available from the NHS pensions hub.
In some instances, you may have to take a refund of contributions, as you won’t be eligible for the other options.
Refunded contributions include any AVCs (additional voluntary contributions) you may have made during your membership.
Taking a break in service
Leaving the NHS Pension Scheme won’t always be forever. Whether you leave the medical profession and return years later, or simply need to stop your contributions for a few months, it’s not uncommon to have a break in membership.
The implications of taking a break depends largely on how long you’re ‘away’. For instance, if you have full protection and leave the 1995 or 2008 scheme but return within 5 years, you can usually re-join your old section of the scheme rather than going into the new 2015 scheme.
If you have tapered protection, you will re-join your old scheme unless you pass your transition date while opted out. Protections are discussed in more detail in our NHS pensions guide.
A break of more than 5 years would see your future benefits accrued in the newer scheme.
Similarly, if you leave the 2015 scheme and re-join within 5 years, your old benefits will be linked to any you build up in the future. Your pensions won’t get linked in this way if you return to the NHS after a break of more than 5 years.
Other impacts of a break
In the more immediate term, taking a break from the NHS pension while still in NHS employment will have a notable impact on your take-home pay.
With no pension contributions coming out of your salary, you’ll certainly notice the difference – but what you might not notice is the employer contributions you’re missing out on.
Using the NHS pensions opt-out calculator is a handy way to see the significant benefits you might be sacrificing for a modest monthly increase.