In this section of the NHS Pension Scheme Learning Zone we explore the main features of the 2015 NHS Pension Scheme.
The new 2015 NHS Pension Scheme starts from 1st April 2015.
Career Average Revalued Earnings Scheme (CARE)
The new scheme still provides a guaranteed income on retirement.
However under a CARE pension scheme, your pension is based upon your pensionable pay right throughout your career (not as in the past, just on final salary).
Each year, your pension builds up depending upon your pay in that year. Then the pension you have accrued in that year, is revalued for inflation every year until you eventually take your pension benefits.
Then your final pension is all of those years of pension that your have earned added together.
How Your Pension Builds Up
There are 3 factors which build up your NHS Pension under a CARE Scheme:
1. The Build Up Rate: The 'build-up rate' in the 2015 NHS Pension Scheme is 1/54th. This means that in each year of pensionable earnings, your pension built up in that particular year will be 1/54th of those earnings. For example if your pensionable salary next year is £85,000, then the pension you will have built up next year will be 1/54 x £85,000 = £1,574.07.
2. The Annual Revaluation: Each year of pension that your build up will then be revalued by set factors each in order to keep up with inflation. The revaluation rate is CPI (Consumer Price Index) + 1.5% and so this is rate your pension will increase until the time when you take your benefits. The revaluation calculation happens on 1st April each year.
3. Length of Scheme Membership: You can continue to build up membership for as much as you like until you hit the age of 75. Obviously, the more years of membership you build up, the higher your pension will be.
Breaks In Membership
If you have a break in membership of less than 5 years then the pension you have earned will continue to be revalued at the rate of CPI + 1.5%. However if you have a break of more than 5 years, then the pension you have earned will only increase by the rate of CPI.
Impact of Salary Sacrifice
Because the way your pension is built up based on your pensionable earnings, then of course if your pensionable earnings decrease in any way, this means the pension you will accrue is likewise reduced. This applies to salary sacrifice arrangements (like child care vouchers etc) which can reduce your gross pensionable earnings.
Normal Pension Age
The Normal Pension Age (NPA) is the earliest you can take your NHS Pension Scheme benefits without taking a reduction in your pension. For the 2015 NHS Pension Scheme this is now linked to State Pension Age which is currently 67. It could therefore increase with any increases to the State Pension Age in the future.
The earliest you can take your 2015 NHS Pension Scheme benefits (with actuarial reduction in pension) is currently 55.
Other Benefits of the New Scheme
The 2015 NHS Pension Scheme has many of the benefits featured in the 1995 Section and 2008 Section of the Scheme. These include:
- Ill health pension
- Survivor benefits
- Children's pension
- Lump sum payable on death
Like before, there is the option to buy Additional Pension through lump sum investments or regular savings plans.
Transfer In and Out
It is possible to currently transfer pensions accrued elsewhere into the NHS Pension Scheme and you may also be able to transfer your NHS Pension rights to an alternative pension if you have left NHS employment before your normal retirement date.
Early Retirement Reduction Buy Out (ERRBO)
A new feature of the 2015 Scheme allows you to make additional contributions into the Scheme in order to take your pension benefits early without suffering from an actuarial reduction.
The ERRBO cannot bring forward your earlier retirement date by which you receive un-reduced pension by more than 3 years or before 65 years of age.
Applications for ERRBO must be made within 3 months of joining the Scheme in order to be effective from the first year of membership.
As before, NHS Pension Scheme contributions in the 2015 Scheme will be based on the amount of your pensionable earnings. The more you earn, the more you pay. The rates are as per the news article a couple of days ago.