Introduced in April 2015, the latest version of the NHS Pension Scheme has different rules to the schemes that went before.
If getting on top of your retirement planning is among your New Year’s resolutions for 2018, you’ve made a smart choice. Research published by the Financial Times in late 2017 revealed that the number of young NHS staff choosing to opt out of their pension scheme has nearly doubled in the past three years.
Retirement planning is a good idea for most people, let alone doctors, for whom retirement finance can be particularly complicated, given the intricacies of the NHS pension system and pay structures. In the meantime, do you know the basics about the 2015 NHS Pension Scheme, introduced just two-and-a-half years’ ago?
Here are five key features every doctor should understand.
1. When do I join the 2015 scheme?
Three-quarters of existing NHS employees will join this scheme at some point, leaving behind their previous 1995 or 2008 section of the NHS Pension Scheme. The majority will have joined when the scheme was launched on the 1 April 2015, and all new employees have also joined.
If you’re not already a member of the scheme and worked for the NHS prior to 2015, it’s because you have some sort of “protection”.
Doctors with full protection won’t ever be asked to join the 2015 scheme. These are doctors who were less than 10 years off their normal retirement date on 1 April 2012 – typically, age 50 for those in the 1995 section (or 45 for those who retain Mental Health Officer status) and 55 in the 2008 section.
Doctors with tapered protection are those who were between 10 and 13 years and 5 months away from their normal retirement date on 1 April 2012, and will join the 2015 scheme by 1 April 2022. For each month beyond 10 years you were off your normal retirement date on 1 April 2012, you’ll join the scheme two months before the final deadline. For example, a doctor who was 10 years and six months off their normal retirement date on 1 April 2012 will join in April 2021.
2. How is my 2015 scheme pension worked out?
You get 1/54th of your pensionable earnings for each year you are a member of your scheme. For as long as you’re an active member, each year’s entitlement is then increased to account for rises in the cost of living – the increase is 1.5% a year, plus Consumer Prices Index, which is a measure of inflation.
So, if your pensionable earnings were £54,000 last year, you would have earned £1,000 of pension; this might be upgraded this year at a total rate of, say, 3%, taking your entitlement to £1,030 for the year. A new rate is set each year, currently dependent on the CPI rate each September, and applied retrospectively.
If you leave the scheme before your normal retirement date, you no longer get the annual uprating. Instead, your pension entitlement will be increased when you begin claiming it to reflect the effects of inflation over time.
3. When can I take my pension from the 2015 scheme?
Your normal retirement date for this scheme is the later of when you reach age 65 or your state pension age, which will be later for most people – the state pension age for men and women will rise to 66 by October 2020, and then to 67 by 2028.
You have the option of retiring early once you reach the minimum pension age set by the government, which is currently 55, but you’ll receive a smaller pension. The earlier you retire, the greater the reduction in your benefits.
4. Can I take a lump sum from the 2015 scheme?
On retirement, you can choose to give up some income in return for a tax-free lump sum payment – each £12 of lump sum you take will reduced your annual pension by £1. The only cap on this entitlement is the limits set by HM Revenue & Customs, which won’t allow you to take a lump sum worth more than 25% of the capital value of your benefits or 25% of the lifetime allowance in force at the time, whichever is lower. If you have previously applied for a form of pension protection, your protected lump sum could be higher. Learn more about the NHS pension scheme tax-free lump sum here.
5. What happens to any benefits I built up in the previous NHS scheme?
All benefits built up in the 1995 or 2008 section of the NHS Pension Scheme will remain where they were and are fully protected. Once you reach retirement, these benefits will be treated separately to those earned in the 2015 scheme; your entitlement will be calculated in accordance with the rules in those sections.
You’ll be able to take benefits from these sections at the normal retirement dates, or earlier if you accept lower benefits. You may be able to carry on working within the NHS but need to agree this with your employer or partners. Equally you will have to fulfil certain rules stipulated by HMRC if you want to return to work.
If you draw your benefits from the 1995 section and return to work you will not be able to build up further pension benefits in the 2015 scheme. If, however, you have added years, you can draw these in isolation from any other benefits if you wish, and continue to build up further 2015 pension benefits.
Content correct at time of writing and is intended for general information only and should not be construed as advice.