I have often heard people say it’s not worth being in the NHS pension scheme. Despite the changes, for 99% of people this is just not true and I would love to be a member of either the 1995, 2008 or 2015 pension scheme.
There are fantastic scheme guides on the NHS website and I think all of you should apply for a total rewards pension statement. This tells you your current pension and the actual value of your pension and what it would cost you personally to get the same pension.
The normal retirement date remains age 60 and all benefits accrued within that scheme can still be taken at age 60 without penalty. The pension is based upon the best salary in the 3 years before you take your benefits. The pension is 1/80th of final salary and a lump sum of 3/80th for each year of service.
The normal retirement date is age 65 and the pension is still based upon your best earnings in the last 3 years but the pension accrual is 1/60th for each year’s service and if you want a lump sum then you give up part of your pension.
The normal retirement date is now linked to state pension age so for many people that will be age 67 or higher. The pension is now 1/54th of your average career earnings so it is no longer a true final salary scheme. The lump sum is provided by giving up some of your pension.
So what scheme am I in?
If you joined the NHS:
- before the 01/04/2008 then you have benefits in the 1995 Scheme
- between the 01/04/2008 and the 31/03/2015 then you will have benefits in the 2008 scheme
- after the 01/04/2015 then all your benefits are under the 2015 scheme.
If you were in the 1995 or 2008 scheme and you were born before 01/04/1962 you retain membership of that scheme and you do not join the 2015 scheme. If you were born between the 01/04/1962 and the 31/07/1965 you will be transitioned into the 2015 scheme. If you were born after this then you joined the new scheme on the 01/04/2015. The membership that you had under the 1995 or 2008 scheme is still payable at age 60 or 65 and is still based upon your final salary. It is only future service that is in the new scheme.
Special class status
If you are very lucky and you have this then you still retain age 55 as your normal retirement date and a different set of transitional rules apply. If you retire at age 55 and return to work then you can be subject to the abatement rules. This means that your pension plus the new NHS work can’t be more than your pre-retirement income otherwise you lose some of your pension.
Lifetime Allowance (LTA)
The government is reducing the limit from £1.25m to £1m from April 2016 so you could end up being penalised. You may need to apply for protection to protect your accrued pension. Please remember that if your accrued benefits were above £1.25m as at 05/04/2014 then you can apply for protection up to a maximum value of £1.5m. Not applying for protection could reduce your pension by up to £6250 per year so take advice please.
Annual Allowance (AA)
The current AA is £40,000 and the Government from April 2016 are going to reduce the AA for high earners - someone who’s assessable income is above £150,000. The assessable income is the actual taxable income plus the full growth in the AA less what the member has paid in personally. The AA is reduced by £1 for every £2 you are above the £150,000 threshold e.g. if your taxable income is £140,000 the growth in the AA is £60,000 and you have paid in £20,000 personally. The assessable income in this case is £200,000 less the £20,000 you’ve paid, giving a net figure of £180,000 which is £30,000 above the threshold so your AA is cut by £15,000. So you only have an AA of £25,000 that year but you have used up £60,000 so you end up with an extra tax liability of £6750.
Don’t forget the incredibly valuable death in service benefits, dependents pensions and children’s pensions as well as the ill health early retirement pension.
However there is a vitally important difference for Locum GPs. As a locum GP you’re only covered for the full range of benefits for the hours you are contracted to work. If you are a younger locum with dependent children the benefits could be massively lower. It would be advisable to seek specialist advice to see if you need additional life cover to supplement the NHS benefits. If you are in poor health this might be hard to achieve; serious consideration should then be given to obtaining a permanent post as your spouse and children could be considerably better off if you were to die.
Before taking any decisions seek suitably qualified advice from specialist medical independent advisors fully authorised by the Financial Conduct Authority. ●
Kevin Walker, NHS Pension Specialist, BW Medical Accountants. Blackett Walker is authorised & regulated by the Financial Conduct Authority.