NHS Pension Scheme Learning Zone (8)

Now we will consider what benefits you can expect to receive from your NHS Pension Scheme. At retirement you can receive a pension income and a tax free lump sum.

There is currently a different way of calculating your pension benefits depending upon whether you are an NHS 'Officer' or a 'practitioner'. For 'Officers' your pension is calculated using the 'Final Salary' method which means that your pension will be partly dependent upon what your pensionable salary is at or near retirement. For 'Practitioners' your pension is based on your revalued earnings throughout your career - known as a Career Average Revalued Earnings pension scheme.

In both Sections of the NHS Pension Scheme, whether 1995 or 2008, you will receive an annual pension. In the 1995 Section you also automatically receive a tax free lump of three times your annual pension. In both Sections you can commute some of your pension for a tax free lump sum.

It is possible, in both Sections, to allocate some of your pension to a dependent like your spouse or perhaps a child under some circumstances. This is a 'one-off' decision and cannot be reversed and remember the pension is only paid to your chosen dependent upon your death.

In some instances, particularly Practitioners, will have accrued earnings as both Officers and Practitioners. In these cases, your NHS Pension benefits are calculated using both methods and which ever calculation produces the highest pension is the one chosen.

NHS Pension Scheme Benefits - Officers

1995 Section

Your benefits on retirement will be an annual pension and an automatic lump sum of three times your pension. The pension benefits will be based on your best of your last three years pensionable pay.

For each year of pensionable membership you accrued 1/80th of your final salary.

Therefore your pension is calculated as follows:

pensionable pay x pensionable membership x 1/80 = pension

pension x 3 = tax free lump sum

For example:

You are a doctor who retires with 35 years service and the best of your last three years salary is £105,000. Your annual pension would be:

105,000 x 35 x 1/80 = £45,937.50

and your tax free lump sum would be:

£45,937.50 x 3 = £137,812.50

2008 Section

Your annual pension at retirement is based on your 'reckonable' pay which is the average of the best 3 consecutive years pensionable pay in the last 10 years before retirement.

The pension is based on 1/60th of your reckonable pay for each year of membership. There is no automatic lump sum (but of course the accrual rate is better value than the 1995 section) and so if you want a tax free lump sum you have to commute some of your pension for lump sum.

In the 2008 Section therefore, your pension is calculated as follows:

reckonable pay x pensionable membership x 1/60 = pension

For example a doctor retiring after 40 years of membership with reckonable pay of £90,000 would receive a standard pension of:

£90,000 x 40 x 1/60 = £59,999.99

NHS Pension Scheme Benefits - Practitioners

1995 Section

A Practitioners pension in the 1995 Section is based on their career earnings and you will also receive a tax free lump sum.

Your pension is based on 1.4% of your revalued career earnings. Your revalued career earnings figure is reached by recording each year of career earnings and then applying a revaluation factor to each year to take into account inflation. The revalued earnings are known as your uprated earnings.

Therefore your pension is calculated as follows:

Uprated earnings x 1.4% = Pension

Your tax free lump sum is therefore calculated as:

Pension x 3 = Lump Sum

For example, if you are a GP with total uprated earnings of £1,200,000. Then your pension and lump sum would be:

£1,200,000 x 1.4% = £16,800 per year pension

£16,800 x 3 = £50,400 lump sum

2008 Section

Similar to the 1995 Section, you will receive a pension based on your career revalued earnings. However there is no automatic lump sum.

The other difference is the pension is based on 1.87% of your uprated earnings (not 1.4%).

For example, if you are a GP with total uprated earnings of £1,800,000 and are in the 2008 Section. Your pension would be calculated as follows:

£1,800,000 x 1.87% = £33,660 per year pension

In order to continue to learn about the NHS Pension Scheme and its benefits please click on the link below:

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