Welcome to a new series looking at the 2015 NHS Pension Scheme in bite-sized chunks. In this first section we provide a summary of its main features.
The benefits you receive from your 2015 NHS Pension Scheme will depend largely on 4 main factors; namely the pension accrual rate (or build up rate), annual increase for inflation, the length of your membership and your pensionable earnings.
We examine these four factors here:
1. Accrual (Build-Up) Rate
The build up rate is percentage of your annual pensionable earnings which builds up as your pension. In the 2015 NHS Pension Scheme the build up rate is 1/54th of your pensionable earnings. For example, if your earnings in one year are £75,000 then in that year you will have built up 1/54 x 75,000 = £1,389 worth of pension.
2. Annual Increase
As above, each year you build up a pension at 1/54th of your pensionable earnings in that year. Then this pension built up is automatically increased each year to take into account inflation. The inflation factor used is CPI (Consumer Price Index) + 1.5%. Therefore in the example above, if CPI is 1%, this year's pension of £1,389 would increase by 2.5%. therefore the pension would be worth £1,423. This year's pension would increase this way all the way up to your Normal Pension Age.
3. Membership Length
In the way described above, for each year of pensionable membership you will build up pension. Therefore the more years that you build up pension, the bigger your overall pension will be. There are no limits to the number of years pension membership and you can build up membership all the way up to age 75.
4. Pensionable Earnings
This is the amount of your annual income that counts towards your pensionable income and the amount used in the calculation above. Clearly, the higher your pensionable income, the higher will be your likely eventual pension.