NHS pensions appear more complicated than ever before. Here is a brief outline of the three NHS pension schemes and their benefits:
The 1995 scheme
If you joined NHS pension before April 2008, you would have joined The 1995 scheme with a retirement age of 60 for most. In this case your retirement income will be based on the best of the last three years of pensionable earnings on a whole-time equivalent basis as an Officer member of the scheme. For GP’s the pensions are calculated by multiplying the pensionable earnings throughout your career by 1.4%. This scheme automatically provides both a pension and lump sum.
The 2008 scheme
The 2008 scheme gives you normal retirement age of 65 but slightly higher accrual rates. You get 1/60th of the average of the best three consecutive years within the last 10 years as pensionable income, again, this applies to those within the Officer scheme’. For GP’s the pensions are calculated by multiplying the pensionable earnings throughout your career by 1.87%.
The 2015 scheme
The 2015 scheme is calculated on the same basis for both Officers and GPs with a pension of 1/54th of actual pensionable earnings each year of contributions. If you plan on retiring later in this scheme (beyond your State Retirement Age), there is a Late Retirement Factor applied which will enhance your pension and you’ll end up with greater benefits. It also rises above the rate of Consumer Price Index Inflation (CPI) (+1.5%) which helps to offset the rising cost of living.
NHS pension schemes - Three topical areas explained
Some of the most important but least understood elements of the NHS pensions are the different allowances, and the use of partial retirement to access benefits. Here we go over the key points of these rules:
The annual allowance
The annual allowance is the maximum amount you can save into a pension each year. Any amount contributed to a pension in excess of the annual allowance (or 100% of relevant earnings whichever is the lower) will incur a tax charge. There is often confusion around the NHS Pension growth as it is not determined by the amount of actual contributions, but the increase in pension benefits over the year.
The annual allowance for the current tax year 2024/25 is £60,000 but can be tapered to just £10,000 for those with earnings higher than £260,000. HMRC has guidance for helping you calculate your tapered annual allowance here.
You can request your annual allowance growth history from NHSBSA and for those impacted by the Age Discrimination Case, revised figures should be sent out in October this year. This is especially important if you have had increases in pay, high overall income from all sources, lengthy service, additional pension benefits or sizeable pensionable income.
The lifetime allowance
The lifetime allowance, at £1.073,100, was the maximum value of benefits that could be taken from a pension without a charge. It was abolished last year and replaced by the lump sum allowance (LSA) and lump sum and death benefit allowance (LSDBA). The lump sum allowance lets you take up to £268,275 out of your pension tax free. It is imperative to understand your position against the previous Lifetime Allowance as it is still possible to secure protection which may allow the withdrawal of an even greater tax-free amount. There is a deadline for securing protection and with a few months remaining, the calculation of benefits is essential.
24 hour retirement and partial retirement
24 Hour Retirement (Retire and Return) has been very popular with NHS medics as it provides the ability to retire for just one day before accessing pension benefits. However, it is important to note for consultants, it would see Clinical Excellence Awards or Clinical Impact Awards lost, along with a new contract required which may be on a rolling basis rather than permanent. The process for GPs has typically been easier, particularly for partners at multi-partner practices if written agreement is given by the practice and Integrated Care Board. Single-handed GPs would potentially risk the list going out to tender as a result of the 24 hour break.
Partial Retirement is now available in all three schemes, after October 2023 changes to the 1995 Section. It introduced the ability to reduce pensionable income by 10% or more (for at least 12 months, or in the case of GPs), reduce commitment at the practice by at least 10%, and then up to 100% of benefits can be accessed. Please note, if benefits are drawn before Normal Retirement Age, there is likely to be an Actuarial Reduction applied.
In either scenario, written confirmation of acceptance is required and understanding your individual position will determine the preferred course of action.