Cost-of-living crisis pushes over 50,000 out of NHS Pension Scheme

The cost-of-living crisis has pushed over 50,000 people to leave the NHS Pension Scheme this tax year over affordability concerns, a freedom of information request from Quilter has revealed.

The data from the NHS Business Services Authority revealed that 155,092 people left the pension scheme from April to December 2022, with 35 per cent, around 53,762 savers, citing cost pressures as a key reason.

However, Quilter pointed out that this data only runs from April to December 2022, warning that this figure could be set to grow further.

In particular, 26,100 stated they left the scheme due to affordability and 27,662 stated that they temporarily opted out due to other financial priorities.

Given this, Quilter suggested that many of those who have opted out will also be opting back in again, using a ‘hokey cokey’ mechanism to try and reduce pension growth for the year to avoid being hit by the annual allowance tax charges.

The annual allowance charge has faced growing scrutiny in recent years amid concerns over the impact of pension tax issues, as it was revealed doctors were reducing their hours due to these complex rules impacting their retirement savings.

However, Chancellor, Jeremy Hunt, recently announced plans to increase the annual allowance, suggesting that the increase, alongside changes to the tapered annual allowance and the lifetime allowance, will stop over 80 per cent of NHS doctors from receiving a tax charge.

Commenting on the findings, Quilter NHS pension specialist, Graham Crossley, stated: “Almost everyone has been feeling the pinch over the last year or so with inflation reaching eye watering levels and many people’s mortgage bills putting a sizeable dent in salaries.

"This data illustrates that sadly people have decided to leave the NHS Pension Scheme in a bid to have more money in their pocket today.

“Although there are still significant problems with the scheme it is very generous and people opting out in their droves is worrying to see as it can have a significant impact on someone’s future retirement prospects.

“There also continue to be some technical problems associated with how the scheme is taxed which throw fuel on the fire and make it much more likely that someone will leave the scheme to avoid a tax bill.

“Opting out of the scheme for any reason may not be best course of action and can have a serious impact on someone’s pension provision, as well as their family’s financial protection, so is therefore not a decision to be taking lightly and it is worth first seeking professional financial advice.”

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