There has been a 22 per cent increase in NHS staff opting out of the pension scheme over the past year, according to data from Quilter.
It says the numbers opting out of the NHS pension scheme increased by nearly 10,000 in the 2019/20 tax year to 50,399 people.
This data, obtained under a freedom of information request, shows over the last four tax years on average 44,843 NHS staff opted out of the pension scheme per year – a total of almost 180,000 staff.
Quilter says many of those who have opted out may opt back in at a later stage. These changes are often made to try and reduce pension growth for the year and so avoid being hit by the annual allowance tax charges.
Problems with the annual allowance hit the headlines in recent years, as it emerged that doctors were in some cases reducing their hours due to ensure they were not hit with a tax charge as a result of exceeding this allowance.
Many of those opting out may also be looking to mitigate against breaching the Lifetime Allowance (LTA), which was frozen in the most recent budget at £1,073,100. There is speculation today that this may be reduced again in the November budget.
Quilter says there is a common misconception that breaching the LTA means you should exit the NHS pension scheme, whereas many could still benefit significantly by staying in the scheme.
It points out that when members opt out, they expose themselves and their families to a greater financial risk in the event of death or ill health, as these benefits are reduced for a deferred member.
Quilter NHS pension specialist Graham Crossley says: “This data adds to the argument that we need to take a very careful look at the current pension tax system for the public sector and see whether it is still fit for purpose.
“The NHS has played a huge role in helping the country keep going during the pandemic and its worrying and sad to see that in last tax year significantly more people in the health service felt that leaving the NHS pension scheme was their best option due to a complex tax system that penalises the right behaviours.
“Opting out of the scheme 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.”