NHS Pension Transfer to a QROPS
An NHS pension transfer to a QROPS is allowed for anyone who was worked in the UK and wishes to retire abroad.
Can I Transfer Out My NHS Pension to a QROPS?
Yes, it is possible to transfer out an NHS pension into a QROPS. A QROPS is a Qualifying Recognized Overseas Pension Scheme which allows transfers from UK pension schemes in order to move your pension outside of the UK tax net. A transfer from the NHS to a QROPS avoids all UK taxes. An NHS transfer to a QROPS avoids UK income tax and passes 100% of your pension pot to your loved ones upon death. You can also choose which currency you want your pension set up in. This is useful if you move to Spain for example and don’t want your pension to fluctuate with currency fluctuations. Instead you can transfer your pension pot into EUR if you wish or keep it in GBP.
Who can transfer out of an NHS pension to a QROPS?
Anyone who has worked in the NHS and paid into the NHS Pension Scheme (NHSPS) and intends to retire abroad outside the UK. This includes doctors and nurses from overseas who have worked in the UK.
NHS staff who have transferred to private companies are still allowed access to the NHS pensions scheme and staff that have left the UK can transfer both their private schemes and their NHS scheme into one easily manageable place under a QROPS.
Why would I want to transfer out of an NHS pension scheme to a QROPS now?
On top of NHS pay freezes over the years, contributions have increased as well whilst the scheme is now moving into deficit.
UK gilts are at all time lows. UK gilts are used to calculate final salary pension schemes like the NHS. This means current higher valuations for your pension pot. We can help you get a Cash Equivalent Transfer Value (CETV) from the NHS and also organize a free transfer analysis report before you decide to transfer.
The NHS Pension Scheme is a Defined Benefit (DB) public service pension scheme. Like most of the main public service pension schemes, it operates on a pay-as-you-go basis.
The benefits and conditions of the NHS pension scheme vary according to the type of worker and when they worked; from 2008 the “Normal Retirement Age” changed from 60 years to 65 years while the proportion of pay upon which a pension is based was increased. The benefits are index-linked and guaranteed. They are based on final salary for members who joined before 1st April 2008 or average salary for members who joined after 1st April 2008. The benefits are based on the number of years of membership to the scheme.
Members of the 1995 section accrue pension benefits at a rate of 1/60th of final salary for each year of service, compared to 1/80th (plus a lump sum of three times the pension) in the 1995 section. Members of both sections pay contributions at a rate which is tiered according to pay.
The NHS pension scheme is currently in surplus and has been in net surplus for the past 17 years in the order of £11 billion. The office of budget reporting revised sharply their predictions for pension receipts last year to predict a deficit by 2013-14, instead of 2016 as predicted the year before. The downturn was due to frozen public sector salaries and hence pension receipts as well as higher than normal employees taking early retirement.
For British expats or anyone who has worked at the NHS and contributed to the pension scheme, there is now a chance to exit the scheme to avoid paying taxes in the UK.
The NHS has steadily reduced the benefits to employees over the years. The pension is now linked the lower measure of inflation: the Cost Price Index (CPI) rather than the Retail Price Index (RPI).
Benefits of NHS Scheme
Members of both sections are entitled to:
- a pension linked to pay and length of membership. Benefits are fully guaranteed and pension increases are applied each year to keep pace with inflation
- immediate life assurance of twice annual pay from the first day of joining – this is usually a tax-free lump sum payable to a member’s spouse, civil partner, qualified unmarried partner, nominee or estate
- pensions and allowances for the member’s spouse, civil partner, qualifying unmarried partner and dependent children upon death
- a tax free lump sum (optional in the case of members of the 2008 section)
- voluntary early retirement from age 50 (1995 section) or 55 (2008 section). Members will receive an actuarially reduced pension because the pension will be paid earlier and for longer.
In addition, members:
- do not pay administration costs
- may transfer pension benefits into and out of the scheme (if a member changes jobs in the NHS their membership will normally continue)
- can increase their contributions to get bigger benefits
The lump sum is normally 3 x annual pension, but an increase is allowed by sacrificing some future income.
What would you receive upon death from an NHS pension?
Well, it depends when you joined and when you died, but basically the spouse would receive between 2 or 3 times annual pay ad a lump sum plus around half the annual pension.
If you joined after 2008, the spouses pension drops to just 37.5%.
It is a little more complex that this, for the exact amounts please see NHS Retirement Benefits.
Benefits of NHS Pension Transfer Out to a QROPS
- An NHS pension is linked to CPI, the lower rate of inflation and guaranteed. A QROPS allow you to invest in inflation linked gilts, corporate bonds, high dividend funds, gold, silver, individual shares and mutual funds. You have much more choice where to invest to target the possibility of higher returns based on your risk profile.
- 100% of your pension pot is passed to your loved ones upon death, unlike the NHS pension. You can nominate who gets what. The QROPS is a trust with beneficiaries paid out upon death. This makes it easy for cash to be paid out to who you wish upon death.
- No UK income tax. You avoid UK income taxes altogether which can be as high as 50%.
- Choose the currency: GBP, USD and EUR. This is useful if you have retired overseas and worried about currency fluctuations affecting your pension income.
- For Indian doctors who have worked in the UK and want to transfer their pension out of the NHS, we also have a special QROPS in India based in Rupees, although the benefits are not as good as under a traditional QROPS.
NHS Pension Transfer to QROPS Summary
Every case is different, but anyone considering transferring out from the NHSPS to a QROPS should contact QROPS specialists to get a transfer analysis done. You can ask for a critical yield analysis or a full TVAS using our Transfer Value Analysis System. The critical yield analysis we can do for free.
Please send us an email and we can get your free transfer analysis report, so you can make your own decision on whether a transfer is suitable or not.NHS Pension Transfer to QROPS for British Expats and UK Employees Moving Abroad by Richard Malpass