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Important Changes to the NHS Pension Scheme

 

As you may have heard, following the review of the NHS Pension Scheme (NHSPS) the review partners, made up of health sector trade unions, the Department of Health, employer’s representatives and NHS Employers have reached agreement on the proposed changes to the NHSPS which have been put before ministers.

Certainly the proposals are an improvement on the Government’s original position; which was that by 2013 the NHSPS would move to a normal pension age of 65 and a reduced value Career Average Revalued Earnings (CARE) method of accrual for all members.

From 1 April 2008 the NHSPS will become two schemes; with new entrants joining the new NHSPS (new scheme) and existing members and deferred members who rejoin the scheme before 1 October 2008 remaining in an amended version of the current NHSPS (current scheme). Other members of the current NHSPS will not be affected by these changes unless they re-enter NHS pensionable employment after 1 April 2008.

Who can remain in the current NHSPS?

  • Members in pensionable service as at 1 April 2008
  • Members in pensionable service as at 1 April 2008 who subsequently defer their benefits and then rejoin the NHSPS within 5 years of leaving
  • Deferred members as at 1 April 2008 who rejoin the NHSPS prior to 1 October 2008 or after 1 October 2008 but within 5 years of leaving
  • Those leaving the scheme with less than two years service (i.e. no deferred benefits) and returning to the NHS within a year will have the option of which scheme they rejoin

Who will join the new NHSPS?

  • Members who join the NHSPS for the first time on or after 1 April 2008
  • Members in pensionable service as at 1 April 2008 who defer their benefits and then rejoin the NHSPS more than 5 years after leaving
  • Members of the current NHSPS who elect for all of their past and future service benefits be transferred to the new scheme during the choices exercise which begins in July 2009

What are the differences between the current scheme (as amended from 1 April 2008) and the new scheme?

 
Current Scheme (Amended)
New Scheme
Normal pension age (NPA)

60 (55 for Mental Health Officers)

65

Minimum pension page (MPA)

50/55 (active members of the current scheme at 5 April 2006, and deferred members at 5 April 2006 with active service after 30 March 2000, will retain an MPA of 50. Other members of the current scheme will move to an MPA of 55 from 6 April 2010)

55

Maximum service limit

45 years at age 65

45 years at any age

Pension contributions

Will be tiered and linked to level of full time equivalent salary, as follows:

Below £19,165 - 5%

£19,166 - £63,416 - 6.5%

£63,417 - £99,999 - 7.5%

£100,000 and over - 8.5%

Will be tiered and linked to level of full time equivalent salary, as follows:

Below £19,165 - 5%

£19,166 - £63,416 - 6.5%

£63,417 - £99,999 - 7.5%

£100,000 and over 8.5%

Earnings limits

Earnings cap (currently £112,800) lifted in respect of future service. Service accrued prior to 1 April 2008 will be subject to the cap.

No earnings cap for service in the new scheme. Service currently capped and transferred to the new scheme will remain capped on the current basis.

Definition of final pensionable pay

Best of the last 3 years annual pensionable pay

Average of best 3 consecutive years annual pensionable pay in the last 10 years (revalued by RPI increases)

Pension accrual rates for salaried doctors

1/80th of final salary for each year of service (plus separate lump sum)

1/60th of final salary for each year of service (but no separate lump sum)

Pension accrual rates for GPs

1.4% of career average revalued earnings. CARE accruals will be dynamised by RPI + 1.5% per annum.

1.87% of career average revalued earnings. CARE accruals will be dynamised by RPI + 1.5% per annum.

Tax free lump sum benefits

Automatic provision of lump sum of 3 x pension benefit.

Plus, members can commute pension to provide additional lump sum benefits at a conversion rate of 12:1 up to a maximum of 25% of total pension saving.

Lump sum benefits not provided automatically. Members can commute pension to provide lump sum benefits at a conversion rate of 12:1 up to a maximum of 25% of total pension saving.

Added years

No new contracts from 1 April 2008. Transitional period introduced for minimum of 12 months to allow members of current scheme to elect to use this facility.

Not included in new scheme

Pension purchase arrangements

Additional annual pension up to a maximum of £5000 can be purchased in blocks of £250. Additional pension can be claimed at 60.

Additional annual pension up to a maximum of £5000 can be purchased in blocks of £250. Additional pension can be claimed at 65.

Voluntary early retirement

Pension taken prior to 60 will be subject to actuarial reduction.

Pension taken before 65 will be subject to actuarial reduction

Late retirement

No additional enhancement

Pension accrued prior to scheme NPA and taken after NPA will be enhanced by actuarial late retirement factors.

Ill health retirement

Benefits under separate review

Benefits under separate review

Redundancy arrangements

Revised redundancy arrangements introduced on 1 October 2006 PLUS transitional arrangements for qualifying members being made redundant after 1 December 2006. Further information available at

http://www.nhsemployers.org/pay-conditions/pay-conditions-1451.cfm

Revised redundancy arrangement introduced on 1 October 2006.

Flexible retirement options

Voluntary step down arrangement

Voluntary step down arrangement

Draw down arrangement

Pensionable re-employment

Not available (pending confirmation of arrangements being considered under the ill health review)

Members who have taken their pension in full and left the scheme can return to pensionable employment

Abatement Policy

Abatement applied only on the unearned portion of pension, i.e. the enhanced element. Applies to redundancy and efficiency retirement under the transitional arrangements where the member is re-employed prior to age 60 (except where the member uses the redundancy payment to fund early payment of the pension without reduction).

Abatement in respect of ill health retirement is being considered as part of the ill health review. 

Applies on same basis as arrangements in current scheme but up to NRD of 65. Abatement in respect of ill health retirement is being considered as part of the ill health review. 

Survivor Benefits

Introduction of survivor benefits to nominated partners based only on NHS service after 6 April 1988. Survivor benefits payable for life.

Introduction of survivor benefits to nominated partners.

Survivor benefits payable for life.

Short Term death in service pensions

Payable for 6 months

Payable for 6 months

Children’s Survivor benefits

Will cease at 23 but payable indefinitely if child, through mental or physical impairment, is unable to earn a living and the condition existed at the date of the members death

Will cease at 23 but payable indefinitely if child, through mental or physical impairment, is unable to earn a living and the condition existed at the date of the members death

What is the position of members who were in receipt of benefits prior to 1 April 2008?

NHS pensioners who retired before 1 April 2008 will be unaffected by any of these changes.

What is the position of members who were active on 1 April 2008 but retired before being given the option of transferring to the new scheme?

Members who are active members of the current scheme on 1 April 2008 but retire before being given the choice to move to the new scheme will be given the opportunity to join the new scheme if they return to NHS employment. They will be required to have a 2 year break in pensionable employment between taking benefits and joining the new scheme. It is proposed that the choice exercise (on whether to transfer to the new scheme) will take place in July 2009 so members intending to retire between 1 April 2008 and 30 June 2009 may fall into this category.

Further information can be obtained from www.nhspa.gov.uk