An appeal has begun to raise £100k for family of locum Helen Sanderson because of the death-out-of service-loophole within the NHS pension scheme. Helen died on Christmas eve last year, and because of a gap in the life assurance cover within the NHS pension scheme, since Helen's only current contributions to the scheme were as a locum, her family was denied payments worth over £100,000.
See the full story here, which includes an embedded link to today's article in Pulse and a link to the donations page.
There's been a lot of conflicting talk recently about locums not being entitled to 'death in service' benefits, so we've been working closely with the NHS Superannuation people and Paul Gordon from MacArthur Gordon Ltd to come up with some pragmatic advice and steps that GP locums can take to fully compensate for this discrepancy. We hope that by looking at the following example, GP locums can then get advice as to how large their shortfall could be if the death in service benefit didn't apply to them so that they could then purchase the appropriate life insurance policy should they so wish.
As a locum GP, as long as you are, or have been a member of the NHS Pension Scheme, the NHS will provide some sort of protection in the event of death and ill health, but the amount will vary significantly depending upon your length of service, pensionable income and whether at the time of death you are considered an active member of the Scheme.
As such, reviewing your individual position is important but also difficult unless you know exactly when you plan to die.
Alternatives to the NHS pension's death-in-service benefit
If you'd rather not leave it to chance, you could always cover yourself with a life assurance policy. Either speak to your usual financial advisor, or get in touch with Claire Wilson firstname.lastname@example.org from the Blackett Walker team.
The following are examples of likely benefits payable from the NHS in the event of death. In order to put figures to each of the examples we need to make the following assumptions. Dr is 33 and has been working in the NHS for 9 years, has Pensionable Pay of £70,000, is a member of the Old (or 1995) NHS Pension Scheme and currently has a Normal Retirement Age of 60. Rather than cover the complexities of dynamisation, we will assume that the average annual pensionable pay is £60,000.
Dr A is a GP Locum (or 'Locum Practitioner' in NHS pension terms) and is contracted to work Monday to Friday at the High St Practice. Unfortunately he dies midweek (i.e. death in service) on the Wednesday.
- Death Gratuity: this would be equal to twice Dr A's uprated (dynamised) average annual pensionable pay.
- Dependants Benefits: any (normal) widow's pension would be based on Dr A's hypothetical tier 2 (enhanced) ill health pension at date of death. (However for the first 6 months Mrs A would receive the initial widows pension based on Dr A's pensionable pay before the normal widow's pension took over).
- In this case:
- Dr A’s estate would receive £120,000 as a Death in Service Lump Sum.
- The widow would also receive 6 months income of the pre death pensionable amount.
- The Dependants Benefits would be calculated as follows:
- 9 years service accrued.
- Age 33 at death, leaving 27 years remaining to age 60 of which, the enhancement would be 2/3rds.
- 9 + 18 = 27 years service.
- His spouse would be entitled to 50% of the Enhanced Income for life, in this case the Enhanced Income would be calculated as follows:
- 27 x £60,000 = £1,620,000 x 1.4% / 2 = £11,340 per annum.
- Any child would receive a quarter each of the Enhanced Income until the age of 23 if in full time education, although this is capped at a maximum of 2 children at any one time.
Dr B is a GP Locum and is contracted to work Monday to Friday at the High St Practice. Unfortunately he dies on a Saturday; he does not work at weekends. In this instance the death within 12 months rules apply.
- Death Gratuity: this would be equal to three times the value of Dr B's annual pension at date of death.
- Dependants Benefits: any (normal) widow's pension would be paid on the first day after date of death and be based on Dr B's hypothetical tier 2 (enhanced) ill health pension at date of death.
- In order to gauge likely Death Benefits we need to assume the likely accrued pension benefits.
- As such, 9 years service within the Scheme in a sessional position post training will see accrued benefits of approximately £6,000 per annum (from 60).
- The Lump sum payable would therefore be 3 x £6,000 = £18,000.
- The dependants benefits would again be enhanced, so assuming death aged 33, with 27 years potential service remaining, an additional 18 years would be added to the accrued service, giving a total of 27 years as previously mentioned for Dr A.
Dr C is a GP Locum. Unfortunately he dies more than 12 months after his last pensionable post ceased. In this instance the death on preservation rules apply.
- Death Gratuity; this would be equal to three times the value of Dr C's annual preserved pension.
- Dependants Benefits; any (normal) widow's pension would be paid on the first day after date of death and be based on Dr C's accrued pension; i.e. no enhancement.
- As with the previous example, the lump sum would be £18,000. The dependants benefits would be significantly less and based purely on the 9 years service.
As you can see, the above examples highlight the issues that could arise depending upon literally the date of death. It is therefore important that your individual situation is reviewed to ensure debts and liabilities are covered, your spouse can maintain their standard of living and your children can continue with their education or childcare.