The NHS Pension Scheme allows doctors to take their retirement benefits and then return to work, providing crucial financial planning flexibility, a phased move into retirement or even a useful tax charge mitigation tool.
Doctors approaching the normal retirement age set out in their section of the NHS Pension Scheme have a decision to make. While many will be ready to retire at these ages – 60 in the 1995 section of the scheme and 65 in the 2008 section – there is no compulsion to do so; you could simply continue working, but the other option is to take advantage of the “24-hour retirement” rules, sometimes known as “retire and return”.
Under these rules, doctors are entitled to retire, take their pension benefits, including both their tax-free cash lump sum and an ongoing income, and then return to full-time or less than full-time NHS employment. You can do this at any age above the minimum retirement age set out in your section of the NHS Pension Scheme.
Doctors often opt for 24-hour retirement for lifestyle reasons. For example, you may want to move into retirement gradually, rather than going from full-time work to complete retirement; returning less than full-time after drawing your pension can help you do this while maintaining your income. Or the money released from your pension could be used for purposes such as funding children’s university education or the purchase of a first home – or for many other financial planning needs.
Retire and return could also be useful for those in danger of breaching the lifetime allowance, which sets strict limits on the value of pension benefits at the point of retirement. Where you retire before the normal retirement date of the NHS Pension Scheme, your pension will be reduced according to a fixed actuarial calculation; it is this reduced pension that is considered when calculating whether a lifetime allowance tax charge is payable. Careful forward planning means utilising 24-hour retirement before your normal pension age could be a useful tax mitigation strategy.
How the rules work
The most important element of the retire and return rules is that you must take a break of at least 24 hours from all NHS employment before returning to work. This is necessary to prove that your contract of employment has been severed or, in the case of self-employed GPs, that you’ve come to the end of your partnership.
Moreover, in the 1995 Section once you’ve returned to work, you are not allowed to work for more than 16 hours a week in the calendar month after your return. This rule applies strictly to each week; for example, you can’t work 12 hours one week and then 20 hours the next. Due to Covid it should be pointed out that at the time of writing this condition has been suspended however the rules will be re-introduced on 25th March 2022. It’s important to plan 24-hour retirement carefully: make sure your return to work arrangements are agreed well in advance and that you understand the terms agreed.
If you’re employed, you will need your employer’s permission to retire and return, and you should make sure you have agreed a new contract of employment, in writing, before you give formal notice of your intentions. Also, if you currently have clinical excellence awards or discretionary points that boost your income, you will lose these on retirement.
Similarly, if you’re a GP, you will need the permission of your partners to retire and return. You should also take specialist advice on reviewing and renewing your practice agreement from a firm such as BMA Law. One important issue to consider is who will retain the employer’s element of your pension contributions following your retirement and return to work, when these will stop. Will this money come to you or be shared?
Traps for the unwary
By planning ahead, it will be possible to avoid getting caught out by any unexpected consequences of 24-hour retirement. However, the biggest problem faced by many doctors is that their NHS trust is unwilling to agree to them retiring and returning. In some cases, NHS trusts are completely against this practice, while in others they may only be prepared to consider it in certain areas – perhaps in specialities where posts are hard to fill, for example.
Doctors may need to make their case individually. One compelling argument to put to the trust is that they will make a substantial saving on the employer’s contribution to the NHS Pension Scheme they must currently make on your behalf. At the time of writing this is 20.68% of your pensionable pay in England and Wales, rising to 20.9% and 22.5% in Scotland and Northern Ireland respectively.
Mental health officers, who currently have the option of retiring at the age of 55 without penalty having completed 20 years’ service, also need to consider the issue of abatement. This is the process by which your NHS pension is reduced if your earnings on re-employment in the NHS, plus your NHS pension, exceed your pre-retirement NHS pensionable earnings. Check the position carefully, though bear in mind that the rules don’t cover income from private work; working less than full time in the NHS may also mitigate this issue. Again, due to Covid at the time of writing this condition has also been suspended with the rules being re-introduced on the 25th March 2022.
Re-joining the NHS pension scheme Drawdown in the 2008 Section and 2015 Scheme
If you are a member of the 1995 section of the NHS pension scheme then you can only re-join the scheme if you have retired on the grounds of permanent ill health and are returning to pensionable employment before you reach age 50.
If you are a member of the 2008 section then you can re-join the scheme provided that you have not already achieved 45 calendar years’ of service or reached age 75.
If you are a member of the 2015 scheme, you can re-join up to age 75 with no limits on years of membership.
Drawdown in the 2008 Section and 2015 Scheme
As a member of the 2008 Section or 2015 Scheme 24-hour retirement may not be needed. From the age of 55, members of the 2008 Section and 2015 Scheme can elect to draw down between 20% and 80% of their pension whilst continuing to work.
To be eligible you must reduce your pensionable pay, or level of commitment for general practitioners, by at least 10%. This is usually achieved by reducing your working commitments or stepping down to a role with a lower salary. If the minimum 10% reduction is not maintained in the 12 months after taking partial retirement, payment of the pension is fully abated. No further pension is paid until you again reduce your pay or commitment by the minimum 10%.
At the time of writing temporary suspension until 24th March of the requirement to reduce pensionable pay or level of commitment by 10% allows doctors to draw down pension whilst continuing with existing work commitments and even increase them, if you wish to do so.
Overall, however, doctors who prepare carefully for retirement can usually find an arrangement that works well for them.
Content correct at time of writing and is intended for general information only and should not be construed as advice.