2015 NHS Pension Scheme - New Information Released This Month. The Department of Health has issued an update on the new NHS Pension Scheme reforms and contribution rates.
Please email me on firstname.lastname@example.org for an update on your individual situation.
The introduction of the new 2015 NHS Pension Scheme has come as a result of the recommendations of Lord Hutton in his 2011 report on the state of public sector pensions and the need for reform. The main theme behind the report was to make public sector pensions economically viable in the longer term whilst also protecting the pension needs of members.
In March 2012 the Department of Health issued its Proposed Final Agreement entitled 'Reforming the NHS Pension Scheme For England and Wales' which set out, at a high level, the proposed design of the new scheme to be implemented from 1st April 2015. Since then, the detailed rules have still to be announced and so this weeks update is welcome.
How Does The 2015 NHS Pension Scheme Differ To The Existing 1995 And 2008 Sections?
1. Calculation of Benefits
- Currently pension benefits for hospital doctors are calculated by using their Final Salary, i.e their salary as they approach retirement which is likely to be when it is at its highest. The pension benefits of the new scheme will be based on Career Average Revalued Earnings (CARE).
- Currently hospital doctors build up pension at the rate of 1/80th of final salary per year of service in the 1995 section and 1/60th of final salary per year of service in the 2008 section. Under the new scheme doctors will build up pension at the rate of 1/54th of pensionable earnings in each year of membership. Although GPs already accrue their pension using the CARE method - the calculation will be different in the 2015 scheme.
- A CARE scheme will take your earned pensionable income for each and every year you are in the scheme - and then revalue these earnings by inflation. This increase will take place at the end of each year (31st March) and will be based upon the rate of inflation + 1.5%.
- There will be no limit on pensionable service in the new scheme subject to an upper limit of 75. This is different to the 1995 and 2008 scheme's where the limit is currently 45 years of pensionable service.
2. Normal Pension Age
- The normal pension age is the age that a member can take their pension benefits in full. This is 60 for the 1995 section and 65 for the 2008 section. For the 2015 Scheme the normal pension age will be linked to the state pension age.
3. New Reduction Buy-Out Facility
- There is to be a new facility which allows members of the 2015 Scheme with a Normal Pension Age higher than 65 to pay additional contributions to reduce or, in some cases remove any early retirement reduction that would apply to their 2015 Scheme benefits if they retired before their NPA.
4. ill-Health Retirement
- The ill-health retirement rules are broadly the same for the 2015 scheme as they were for the 1995 and 2008 sections. There remains two 'tiers' of ill health pension. Tier 1 is met where the member is ill enough that they are permanently incapable of performing the duties of their current employment. Tier 2 is met where, additionally, the member is incapable of any work at all.
- A 1995 or 2008 Section member in receipt of Tier 2 ill-health pension cannot pension further NHS employment. In addition, their pension may reduce to a Tier 1 ill-health pension if any new earnings are higher than the lower earnings limit for National Insurance purposes, or if they return to NHS employment for more than one year. This is the same for the 2015 scheme. A member in receipt of a Tier 1 ill-health pension can pension further NHS employment in the 2008 Section of the NHS Pension Scheme and this is also the case for the 2015 scheme; however their pension maybe abated.
- For Tier 2 ill-health pensions in the 2015 Scheme these will be enhanced by a half of the prospective service up to the members State Pension Age. In the 1995 and 2008 Sections this enhancement is 2/3rds prospective employment to Normal Retirement Age.
What Aspects of the 2015 Scheme Are The Same As The 2008 Section?
Many of the benefits of the 2008 Section are also available in the 2015 Scheme:
- Survivor benefits (spouse, partner and children) continue to be based on an accrual rate of 1/160th. For deaths in retirement pensions will continue to be based on pre-commuted pension.
- A lump sum continue to be payable on death.
- Certain flexibilities like drawdown of pension on partial retirement and being able to retire and later return to employment and re-join the pension scheme will be included.
- Commutation of pension to a single cash lump sum where a member qualifies for life expectancy under 12 months
- Option to purchase additional pension.
- Flexibile retirement features like 'Wind Down', 'Step Down' and 'Draw Down' will continue.
- Abatement (reduction) of pension will be a feature of the 2015 Scheme. It will apply to pensioners who have retired early and are in receipt of a pension and then return to NHS employment.