Taking a break in service can have an impact on your NHS Pension, depending on the scheme you’re a member of and how long the break lasts.
There are many reasons why you may be thinking about taking a break from your role within the NHS. It could be a long-held dream to go travelling or perhaps you want to spend some precious time caring for a loved one.
Whatever the reasons, taking time away can have an impact on your NHS Pension. How it affects you depends on the scheme you’re a member of and how long you’re away for.
What happens to my NHS Pension if I leave the NHS on a service break?
Prior to the changes to the transitional arrangements to the 2015 scheme if you were part of the 1995 or 2008 Section and were less than 10 years from your normal retirement date within that Scheme on the 1st April 2012 then you were known as a Fully Protected Member.
If you automatically moved across to the new scheme when it was introduced on 1st April 2015 or through the tapering arrangements and, as a result, have service in either the 1995 or 2008 Section and the 2015 Scheme, then you were known as a Transitional Member.
Due to the age-related nature of these points this led to the Government’s plans to remedy discrimination in the transitional arrangements for the 2015 public service pension schemes. This means that from 1 April 2022 all members have been placed in the 2015 scheme regardless of their age.
For the period between 2015 and 2022 (known as the Remedy Period), members are being placed back into their Legacy Scheme (1995 or 2008). Under the remedy, when benefits become payable members will have a choice whether to receive their benefits under the legacy scheme or whether they would rather receive the benefits of the 2015 reformed pension scheme for any service during the remedy period and this is known as Deferred Choice Underpin or DCU.
It’s worth pointing out that some members known as ‘contingent members’ may still be able to restore their benefits after being out of the scheme for more than 5 years as part of the Government’s plan to remedy the discrimination. This will only apply to those members who opted out of the scheme for reasons linked to joining the 2015 Scheme prior to April 2022.
Getting back to career breaks, if your career break is less than five years, and you re-join now you’ll join the 2015 NHS Pension scheme. In terms of what happens to your NHS Pension if you take a break in service, assuming you were out of the scheme for more than a year, you will be given a choice between keeping your legacy (1995/2008) pension benefits deferred and increasing by the consumer prices index (CPI) or re-linking your previous service in this scheme to your current/final pensionable pay.
If your service break is more than five years, you won’t be able to re-join your existing NHS Pension scheme. Instead, when you return, you’ll automatically join the 2015 Scheme. You will be offered a one-off opportunity to transfer your deferred benefits to the 2015 Scheme. If you decide not to transfer your previous pension any historic benefits you had in either the 1995 or 2008 Section will continue to increase by CPI.
Your NHS Pension when taking a break in service:
As soon as you leave the scheme, your 2015 pension benefits will increase by CPI, as opposed to increasing with CPI plus 1.5%. The same will be the case for a GP with benefits in the 1995/2008 scheme. A hospital doctor will have an officer’s pension in the 1995/2008 scheme and this is based on their final salary. This will be the salary as at the date of leaving the scheme and again this will increase by CPI and will therefore lose the final salary linking.
When you re-join the 2015 scheme, as long as your break is five years or less, then you’ll start to accrue benefits again, which will increase by inflation plus 1.5%.
If you also have benefits in the legacy scheme (1995 or 2008 Section), these benefits will resume their final salary linking as an officer and as a GP will increase by CPI +1.5%. As previously explained if you re-join the Scheme within five years, assuming you were out of the scheme for more than a year, you will be given a choice between keeping your legacy (1995/2008) pension benefits deferred (increasing by CPI), or re-link your previous service in this scheme to your current/final pensionable pay.
For example:
Joe Bloggs works as a hospital doctor in the NHS. He was 40 years old when he decided to have a break in service to look after his three young children. At that time, Joe was a member of the 2015 NHS Pension scheme with legacy benefits in the 1995 Scheme. His pensionable earnings were £60,000.
After 4 years Joe decided to return to work. During the time Joe wasn’t working his pensions in the 1995 Section and 2015 Scheme would have simply increased by CPI . However, upon his return, Joe’s pensionable salary had risen to £80,000, increasing by £20,000.
As his break in service was more than one year but less than five years, Joe will benefit from final salary linking recommencing. This means after re-joining for at least 1 year, at retirement Joe’s 1995 pension will be the greater of the deferred pension allowing for inflationary increases, or the pension calculated based on his new pensionable pay, whichever is greater.
Joe’s 2015 Scheme benefits will start to accrue again based on CPI plus 1.5%. If the break had been longer than five years, Joe wouldn’t have benefitted from final salary linking on his 1995 Scheme benefits or the additional 1.5% on his 2015 Scheme benefits. His benefits would have been increased by CPI only and the 1995 Scheme benefits will be based on his previous pensionable earnings increasing by CPI, which potentially could put him at a serious disadvantage.
What happens to your NHS Pension when retiring during a break in service
If you decide to retire from the NHS Pension Scheme when on a break in service, your NHS Pension will be based on your pensionable earnings at the time you left the scheme and will then increase with CPI. You will not have a final salary linking.
The situation is even worse for those with special class status such as Mental Health Officers (MHO’s) which allows a member to retire at age 55 without a reduction to their benefits. A member must be in a special class post immediately prior to retirement. When a member leaves pensionable employment before age 55 benefits become deferred and do not become payable until the Normal Pension Age of 60
Do I need to take financial advice regarding my pension when leaving or taking a break in service from the NHS?
If you are considering taking a career break, it is important to fully understand the implications this may have on your NHS pension.
As experienced independent financial advisers, we can help you to create a plan of action to ensure you can enjoy your time away from the workplace, free of any concerns. To speak to an expert, get in touch today to arrange a complimentary appointment.
Content correct at time of writing and is intended for general information only and should not be construed as advice.