The NHS pension is gold-plated – but I’m sacrificing it to pay my bills

Nobody would ever turn down extra pay.

But what if you had to pay something yourself to get that extra pay? And what what if you didn’t get it until some far-flung date in the future?

This was the predicament Ekene Okey-Udah found herself facing when she was trying to save money for her wedding and put money aside for a house deposit.

The NHS doctor, 32, told The i Paper she felt she had no choice but to pause her pension payments as a temporary measure so she could receive extra cash in her monthly pay packet.

The NHS Pension Scheme is widely considered one of the most generous in the UK because it is a defined benefit plan.

Instead of relying on volatile stock market investments like most private sector employees, the retirement income of NHS workers is guaranteed and is based on earnings and length of service.

But minimum payments are relatively high. Private sector staff generally have to pay 5 per cent of income to have their employer enrol them in a pension scheme. NHS employee contributions range from 5.2 per cent to 12.5 per cent, depending on earnings – with those earning a UK average wage of £38,000 paying in 9.8 per cent.

With living costs rising, for some this can feel like too much.

“The NHS pension is very generous, but people don’t always understand that you have to pay a lot in to get it,” Ekene explained. “At the time, I don’t think I fully appreciated how good the NHS pension is. All I could think about was that I needed the money now and my pension is a future problem.”

Ekene, who is married to Tommy and lives in Hertfordshire, works as a paediatric doctor in Harlow, Essex. She opted out of her NHS pension for around two years at the start of her career.

“When I got engaged and we needed money for our wedding and a house deposit, I couldn’t think what I could do to get the extra money I needed. My commute was costing me a lot and I already had a huge amount of student debt.

“Then one of my colleagues mentioned that they had opted out of their pension and I hadn’t thought of that as an option. I thought if I did that temporarily, it would give me an extra £200 to £300 a month and once everything had settled financially, I would jump back into the pension scheme again.

“My priority was my present time and affording what we needed then – which was our wedding and house.”

But while the decision to opt out of an NHS pension may ease short term pressure, it can come with long term repercussions and many people do not fully realise what they are walking away from.

For Ekene, regret started sinking in when her husband Tommy was organising his pensions from various different places and “he told me how much he had altogether and I thought: ‘Oh gosh, I haven’t got anything’”.

Ekene says with spending five years at medical school as a postgraduate after a previous three-year degree, she was already on the back foot when it came to paying into a pension – having started work later than some of her friends – and she realised she needed to make up for lost time.

Ekene has since restarted her NHS pension contributions and is keen to catch up when it comes to preparing for retirement. She has recently started a stocks and shares ISA and is contributing £200 to £300 a month to help support her retirement savings.

“It’s hard to say I wish I hadn’t paused my NHS pension as I only did it because I felt I had no other choice,” she said. “At the time, it worked for me. Rather than look back with regrets, I view it as ‘I can still catch up’.”

Some would like a more flexible system

While some NHS workers pause their pensions temporarily to get them through difficult financial periods, others find it hard to reach a position when they can afford to restart them.

Emily, 39, who only wants to be known by her first name, is an NHS midwife who cancelled her pension contributions after going on maternity leave in 2020 and reduced her hours on returning to work.

As a senior band 7 midwife, she says in 2019, her pension contributions were £320 which felt astronomical after having her daughter.

However, even though her daughter is now at school, Emily is still opted out of her NHS pension due to the cost of living and high interest rates on her mortgage, which affects how far her pay stretches.

“We don’t live lavishly, and while essential bills are always paid with ease, our disposable income seems to only go down.

“A pension payment would mean my essential bills wouldn’t get paid. I can’t afford for such a huge lump sum to come out of my take-home salary each month, but at the age of 39, I am genuinely worried about my future financial stability.”

Emily says that while the NHS pension is great for retirement, the drawback is that it does not have the option of a variable or voluntary rate.

“Flexible pension contributions would be incredible and I’d sign up for an NHS pension in an instant if this was possible,” she said.

“The option to reduce or flexibly contribute to my NHS pension would enable me to actually pay into it and take away the anxiety and concern I have about my future and retirement.

How generous is the scheme?

For every year you work in the NHS, you get an accrual rate of around 1/54, so if you earn £50,000 for 40 years, you essentially get £37,000 each year in retirement, but with the figure uprated by inflation, plus an additional 1.5 per cent annually.

Pete Glancy, head of pension policy at Scottish Widows, said: “This is the equivalent of putting away 20 to 30 per cent of your salary if you worked in the private sector and were contributing to the types of pension schemes which are common there.

“So the number one thing is to remain within that pension scheme whilst working with the NHS.”

He added: “Defined benefit pension schemes can be very generous, and it is not always necessary to save more on top, provided you spend a large part of your working life as a member.”

Graham Crossley, NHS pension specialist at wealth management firm Quilter, said the plan was an exceptionally good scheme and is a “significant part of an NHS worker’s total reward.”

“So if you opt out of the pension scheme, you are effectively giving yourself a pay cut. By opting out, they are severely impacting the money that their older self will receive.

Could things change in the future?

Crossley says he feels for those torn between financial stability now and security in retirement.

“The idea of a more flexible scheme where people can choose to potentially pay less into their NHS pension has been mooted a few times by the Department of Health and they have looked at copying other public sector schemes which offer this option.

“But they have never really mustered enough support to make this part of legislation yet and change the NHS pension scheme.”

Other changes have also been mooted.

In 2024, the civil service’s chief operating officer, Cat Little, said: “The questions that we need to look at are, you know, what’s the balance between pay and pensions? How do we really focus and segment our pay on the skills that we most need to recruit and retain within the Civil Service?”

Her remarks were widely seen as an indication that the Government was considering rebalancing pay and pensions in the public sector more broadly

But a challenge is that these schemes pay the pensions of retired staff from current staff contributions. So a change to the current schemes could end up creating a funding black hole in the short-term, which has to be plugged through general taxes.

More recent plans to reform pensions in the public sector – such as in schools last year – have not bee supported by the government.

For now, it seems major reform is unlikely in the near future.