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THIS CHAPTER begins with an outline of the current
scheme and the benefits it provides. The scheme's benefits are substantial,
particularly in the event of illness or death in service and payments are
relatively cheap. It is easy to see why non-principals have felt unfairly
excluded and disadvantaged by not being eligible to join it. Pensions are
complicated and it is not within the scope of this book to provide great
detail. Readers are advised to use the contact addresses below and to consult
independent financial advisers.
The NHS Pension Scheme
All GP principals who contract their services to the NHS are eligible to become
members of the NHS Pension Scheme. From the 1st September 1997 all practice
staff including employed non- principals are able to join the scheme as well.
Self-employed locums are at present excluded from the scheme although there are
efforts afoot to remedy this inequity. For most doctors it is advisable to join
the scheme as the benefits achieved are expensive, if attainable, through
private pension and health insurance schemes. GPs are required to contribute 6%
of NHS superannuable earnings. Such payments are eligible for tax relief.
Health authorities contribute an additional 4% of superannuable earnings and
the government funds the cost of inflation proofing the pension separately.
The main benefits are:
- annual pension on retirement;
- a tax-free lump sum of three times the annual pension, on
retirement (less for married men with service before 1972);
- an enhanced index-linked pension if a GP has to retire on
grounds of incapacity or ill health;*
- an index-linked spouse’s pension of 50% of the
GP’s pension in the event of the GP’s death either in retirement or
whilst still in service;*
- an index-linked pension for dependants of 25% of the GP's
pension for one child or 50% for two or more children;*
- a tax-free lump sum of twice re-valued career average
superannuable earnings in the event of death in service.
*must have at least two years in the
scheme
Index-linked pensions protect against inflation.
The total benefit cannot exceed the equivalent of 40 years reckonable service
by age of 60 (or 45 by the age of 65), including the purchase of any additional
years.
Normal retirement age is 60 but you can stay in the scheme until aged 70
(subject to the 45 years maximum). GPs can retire on a voluntary basis after
the age of 50 but their pension entitlement is reduced (often substantially) to
take account of reduced contributions and because there is likely to be a
longer pay-out time. For a GP, other than an assistant or associate,
pensionable earnings are GP-income known as practitioner-income, less deemed
expenses (including assistant’s salary). For assistants and associates
pensionable earnings are all salaries and fees and regular payments (excluding
overtime).
Service as a Junior Doctor and Clinical Assistant
Service as a junior hospital doctor, and benefits then paid, is usually
converted into practitioner- service (if it is fewer than ten years) on joining
the scheme as a principal. It is advisable to keep all pay slips as a junior
doctor as these contain details of the payments that you have made into the
scheme and are a back up if any errors occur in the calculation of your
contributions.
Benefits as a clinical assistant are calculated separately from the benefits
built up as a GP. The number of part-time years are converted into a whole time
equivalent and benefits based on the whole time equivalent deemed pensionable
earnings divided by 80.
Each year, GPs are sent a form SD86c (from the health authority) detailing
total NHS pensionable pay as well as the contributions made to the scheme. GPs
can request annual details from the NHS Pensions Agency, and it is worth
checking that the two sources of information agree. Ask the Agency for a
‘Dynamising Sheet’. Otherwise problems that arise may be undetected
for years (even until you come to retire when they can be difficult to
correct).
Early Retirement
- The annual pension and lump sum will be reduced if you
retire early;
- Retiring before 55, your pension will not be index linked
until you are 55, unless taken on ill health grounds;
- One month retirement: If you return to NHS work within one
month, the pension will be suspended and pension received repaid;
- If you return to work after one month, the pension may be
abated, unless you are over 60 at retirement;
- If you have more than one NHS job, you will normally have to
leave all NHS posts.
On joining the scheme after a break, it can be worth buying
added years or paying additional voluntary contributions. Added years will
increase the tax free lump sum and the pension.
Added Years
Buying Added Years can in effect buy additional service by the contribution of
an extra percentage of pensionable NHS earnings. The cost of these depends on
the term and age at the outset of paying. All benefits of the scheme are
enhanced by added years. Payments are tax deductible and can be made up to 60
or 65. The benefits are guaranteed but contributions must be maintained unless
there is serious ill health or financial hardship. Added years may not be used
to fund early retirement. Added years contain an important insurance element as
they are credited in full on ill health retirement or death in service.
Additional Voluntary Contributions (AVCs)
AVCs are payments which run alongside the NHS scheme. AVCs are said to be more
flexible because payments can be increased, reduced or stopped. The benefits of
AVCs depend on the performance of the investment fund (and the fund managers),
and the charges that are made on the fund. They can only be taken as a pension,
not as a lump sum, and at the same time as the main benefits. Payments are made
monthly, annually or intermittently and are tax deductible. AVCs can be paid
into the NHS scheme or to an insurance company which offers so-called
‘Free Standing’ AVCs (FSAVCs). Benefits are not guaranteed. FSAVCs
are usually significantly more expensive but will pay substantial commission
for those selling them. Care needs to be taken.
In June 1997, the Minister of Health, Mr Alan Milburn announced that all
practice staff would be eligible to join the NHS Pension scheme from 1st
September 1997. This includes employed assistants, retainees and employed
locums. Associates were already able to join the scheme, as were approved
assistants and so, only self-employed locums continue to be excluded and now
represent the only health workers in the NHS who cannot join the scheme. There
has been some confusion over which assistants could receive superannuation to
date. Health authorities are not usually concerned about whether there is an
actual contract between a partnership and an assistant. So long as the
assistant is paid as an employee, pays national insurance and tax through the
practice, the health authority will calculate the assistant's superannuation
contributions. The extension of membership of the scheme should cost principals
little as health authorities have been told to use funds saved from the cut in
national insurance contributions to meet 75% of the costs and have discretion
to reimburse principals in full from cash limited funds that were substantially
increased (partly for this purpose) in April 1997. By September 1997, a few
health authorities had announced that they were not going to fund the
additional staff contributions in full.
The National Association of Non-Principals has been trying to establish whether
there is a way in which locums could join and therefore reap the benefits that
all other doctors and staff in General Practice now enjoy. The BMA and the NASGP
are pursuing this with the government. One problem which has prevented
practices taking on formal assistants and instead using ad hoc locum cover
(even though the cover may be fairly continuous over several months) is that
assistants' superannuation contributions reduce principals' contributions (and
so benefits).
To date, principals have had their cake and been able to eat it. They have been
able to delegate clinical work to non-principals and still collect the
superannuation contributions for work they have not done themselves. They have
of course paid the non-principal their fee - albeit usually one suggested by
the BMA. Self-employed locums will have to charge an appropriately higher
amount for their services if they continue to be excluded from the scheme.
Otherwise, any doctor who spends any significant period locuming at current
suggested BMA rates will fall significantly behind in pension preparation than
principal colleagues even though they may have spent similar lengths of time in
clinical general practice in the NHS.
Pension Planning
Many non-principals will have spent some time in employed NHS work and so have
contributed to the NHS pension scheme before becoming self-employed. Generally
these contributions, albeit relatively small, will stay within the scheme and
generate a small pension and small lump sum on retirement. In these
circumstances non-principals need also to ensure they have life assurance and
income protection policies. (See the next chapter.) Non-principals have the
option of transferring NHS contributions to a private personal scheme but it is
very unlikely to be sensible to do this. Contributions to private pension
schemes can be made monthly, quarterly or as one-off annual payments. All such
contributions are eligible for tax relief. Contributions are invested and
should therefore grow. On retirement, at any age after 50, 25% of the fund can
be received as a tax-free lump sum. The remaining 75% provides income for the
remainder of your days. Some policies offer a payout if the holder suffers
permanent, total disability - a poor second to the NHS scheme’s payout on
retirement due to ill health.
Money invested in pension plans should be considered as untouchable and doctors
who may require access to money before retirement should consider investing in
other ways such as Personal Equity Plans (PEP), which also produce a tax-free
lump sum which can be accessed in times of financial difficulties or used to
supplement the pension. Contributions to a PEP do not qualify for tax relief.
Further information on private pension planning and PEPs should be sought from
independent financial advisers.
For further information
BMA members can request a number of Pensions Guidance Notes from local BMA
offices.
BMA Services (Independent Financial Advisers) Offices around the country.
Telephone 0645 747737 puts you through to your local office.
Making Sense of Pensions and Retirement by John Lindsay and Norman Ellis
£17.50 Radcliffe Medical Press.
Telephone 01235 528820 or any good bookshop.
NHS Pension Agency England and Wales
NHS Pensions Agency
Hesketh House
200-220 Broadway
Fleetwood
Lancashire FY7 8LG
Telephone 01253 774774
Scottish Office Pension Agency
St Margaret's House
151, London Road
Edinburgh EH8 7TG
Telephone 0131 244 3585
Northern Ireland Health and Social Services Superannuation Branch (HRD 6)
Waterside House
75, Duke Street
Londonderry BT47 1FP
Telephone: 01504 319000
NHS Scheme AVCs
Equitable Life Assurance Society
PO Box 183
Freepost
Aylesbury HP21 7GP
Telephone: 01296 393100
Medical and Dental Retirement Advisory Service
Hertlands House
Primett Road
Stevenage
Herts SG1 3EE
Telephone: 01483 742727
Pensions Ombudsman
11 Belgrave Road
London SW1V 1RB
Telephone: 0171 834 9144
BMA Superannuation Department
BMA House
Tavistock Square
London WC1H 9JP
Telephone: 0171 383 6166
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