"People opting out in their droves is worrying to see as it can have a significant impact on someone’s future retirement prospects."
A Freedom of Information request from Quilter to the NHS Business Services Authority shows that from April to December 2022, 155,092 people left the pension scheme with around 35% of the opt outs due to cost pressures, equating to 53,762. However, data only runs from April to December 2022, so this number is likely to grow.
Of those who left the scheme, 26,100 stated they left due to affordability and 27,662 stated that they temporarily opted out due to other financial priorities.
Many of those who have opted out will also be opting back in again, referred to as ‘hokey cokey’. This is a mechanism often used to try and reduce pension growth for the year to avoid being hit by the Annual Allowance tax charges.
The Annual Allowance charge has been in the spotlight for a number of years after it was revealed doctors were reducing their hours due to these complex rules impacting their retirement savings. In last month's Budget, the government announced that the annual allowance will increase from £40,000 to £60,000.
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.
Graham Crossley, NHS pension specialist at Quilter, said: “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.”
