Should I opt into the NHS pension scheme at 60?

I have worked for the NHS for many years but unfortunately until now could not afford to be in the pension scheme due to being a single parent and having a mortgage I couldn’t afford and a house I couldn’t afford to maintain.

I have sold this house now with virtually no equity but at least I have spare wages as I live with family.

Is it worth me opting back into the pension scheme now I am 60 years of age?

I will not get my state pension till I am 67 so I have to continue working full-time and would like to think I could save a little nest egg.

I currently earn £25,000 a year. My fear is that if I get a small monthly sum of money from the pension then this will disadvantage me in terms of being entitled to pension credit and all the benefits that could bring me such as being able to get a little flat of my own and being able to apply for rent benefits.

I wonder is it possible to have a pot of money instead of a monthly sum. I understand I can have £10,000 savings and still apply for pension credit?

My other incentive is my health. I have just had a small brain haemorrhage and have been told I am at high risk of another one, which I fear could be fatal.

I know if I am in the pension I could nominate my next of kin to receive the death in service payment and as I don’t have anything else to leave them at least that would be something. What would your advice be please?

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Steve Webb replies: Although you are only around seven years away from state pension age there are some good reasons to think seriously about joining your workplace pension scheme.

One of the biggest attractions of the NHS pension scheme is that it comes with a big contribution from your employer.

Whilst your own contribution rate might be around 8 per cent of your gross income (based on your earnings), the contribution rate from your employer and from central government is a little over 20 per cent.

This means that you are in a particularly favourable position when it comes to building up a meaningful pension over a relatively short space of time.

As you know, the main NHS pension scheme is a salary-related or ‘defined benefit’ one which means that what you will get out at the end is a regular income which lasts as long as you do and is protected against inflation.

You also have the option to take part of your pension in the form of a tax free lump sum at retirement.

You mention the option of saving into a ‘pot of money’ or defined contribution pension. This would be an option and you could still get a tax free lump sum when you draw on this pension.

But your employer would not be making the very large contributions that it makes in the salary-related scheme, so you would find it much harder to build up a worthwhile sum.

You rightly ask how all of this would interact with benefits.

In principle, you should be better off having saved for seven years in a salary-related pension with an employer contribution than you would be if you didn’t save at all, but it’s worth checking a few things.

The first thing you should look at is your state pension forecast. You can check this here.

Assuming that you have already built up a full flat rate pension (or will have done so by the time you retire), you should be heading for a pension of £185.15 per week at current rates.

The main rate of pension credit is currently £182.60, which means that your state pension alone will take you above the pension credit line. So, saving for an NHS pension should not deprive you of pension credit.

The position with housing benefit and help with council tax is less clear cut. Although you are not going to be on pension credit, your income may end up not that far above.

This means you may come in to the range of housing benefit and/or help with council tax.

Having an NHS pension will reduce the amount of help you get with these. But this is not on a pound-for-pound basis.

Broadly speaking, I would expect you to be a bit better off in terms of weekly income in retirement having saved in a pension, even taking account of potentially reduced benefits.

You also raise the issue of death benefits. You are right to say that if you join the NHS pension scheme this also comes with valuable death-in-service benefits if you were to die whilst still working for the NHS.

Obviously you hope you will not need this, but it would be an additional reason for being in the scheme.

Indeed, there was recently a tragic case reported in the news of someone who opted out of the NHS pension scheme on grounds of affordability only to die soon afterwards, leaving their heirs with no death-in-service payment.

You should however check the rules to make sure that you would be eligible if the worst were to happen.

Listen to our special podcast where Steve Webb answers readers’ pension questions on the player below, or at Apple Podcasts, Audioboom, Spotify or visit our This is Money Podcast page.