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. However the details of the 2015 NHS Pension Scheme are starting to become known.
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.
2015 NHS Pension Scheme - Important Information For Those Entitled To Full Or Tapered Protection.
For members of the 1995 and 2008 Sections who, as at 1st April 2012, had 10 years or less to go before their Normal Pension Age will have full protection enabling them to continue with their existing Section until retirement.
For members between 10 years and 13 years 5 months to go before their Normal Pension Age at 1st April 2012, will receive tapered protection which means their move to the 2015 Scheme will be delayed.
1995 Section Members
- You will not be able to retire, take your 1995 pension benefits, and then re-join the 2015 pension scheme
- ALL members who have 10 years or less until their Normal Pension Age receive Full Protection and will NOT be joining the 2015 pension scheme
- For members who take a break from pensionable employment for longer than 5 years before 60 will LOSE the protection above and will come back and join the 2015 pension scheme
- Members who have between 10 and 13 years 5 months from their Normal Pension Age will receive tapered protection - for every month of age that they are beyond 10 years of their current NPA, they lose 2 months of protection. At the end of the protected period they will move from the 1995 Section to the 2015 Scheme. Contact us if you are unsure about your individual situation.
- For Special Class members with a Normal Pension Age of 55 then slightly different rules apply. Those members aged 45 or over, but under 50, on 1st April 2012 will be entitled to full protection as long as they continue to qualify for Special Class status. Members aged 50 and over on 1st April 2012 are entitled to full protection regardless of Special Class status.
- Members aged over 41 years and 7 months but not yet 45 years old on 1st April 2012 will be entitled to tapered protection as long as they qualify for Special Class status.
2008 Section Members
- The same Full and Taper Protection rules apply as for Section 1995 members except of course the Normal Pension Age is 65. Please contact us if you are unsure.
Option To Forgo Protection
- Members of the 2008 Section will be allowed, for a limited time only, to forgo any protection and join the 2015 Scheme. Most financial modellers suggest this is may be advantageous to such members.
2015 NHS Pension Scheme - Important Information For Those Moving To The 2015 Scheme. All members not entitled to protection will move across to the 2015 Scheme on 1st April 2015.
- All pension rights accrued in the 1995 and 2008 Sections will be 'banked'. These past pension benefits will still be calculated using final salary when you retire or leave the 2015 Scheme.
- If you have a break from pensionable service for over 5 years that starts and ends after 1st April 2015 will have their past benefits calculated using the final salary as at the last day of pensionable service before the break begins.
- In order to determine the final salary to be used to calculate 1995/2008 benefits - the usual 1995/2008 rules will apply - and then applied to 2015 pensionable earnings.
- The facility to use an earlier final salary where it results in higher benefits (i.e break of service for 12 months or more, protected pay as a result of an organisational change or voluntary protected pay) will continue to apply for this purpose.
- Again, all pension rights attained in the 1995 and 2008 Sections up to 31st March 2015 will be protected and will be put into payment based on the rules of the relevant section.
- In the 2015 Scheme, practitioners will move to the new Career Average Revalued Earnings (CARE) basis and share the same 1/54ths arrangement common to all members.
- 'Practitioner Flexibilities' where pension benefits are calculated for practitioners that have mixed membership (i.e some officer, some practitioner service) resulting in the higher of the Officer or Practioner method of pension calculation, will continue to apply for 1995/2008 benefit calculations. There will be no need to do this in the 2015 Scheme as all members will accrue pension using the same method.
All Members Benefits
- Members will still be able to claim in full their accrued pension benefits from the 1995/2008 Sections on retirement at their Normal Retirement Date of 60/65.
- Those retiring from the 2015 Scheme through ill-health will be entitled to their 1995/2008 benefits too using final salary at that time.
- Death benefits and widows/widowers pension will continue to apply and benefits accrued under the 1995/2008 schemes will be honoured.
- Those qualifying for a Normal Pension Age of 55 can still claim their 1995 benefits in full at this time.
Re-Employment Of 1995 Section Members After Retirement
- Members must leave NHS employment in order to take their 1995 Section benefits and they will not be able to pension further NHS work in the 2015 Scheme.
- 1995 Section benefits can be taken from aged 50 (subject to actuarial reduction). However the member would have to defer claiming their 2015 Scheme benefits until 55.
- If you take your 1995 Section benefits at 55 you can choose to take your 2015 Scheme benefits then (subject to actuarial reduction).
Additional Pension In The Existing NHS Pension Scheme
- Existing additional pension arrangements like 'Added Years' and 'Additional Pension' taken out by 1995 and 2008 Section members will continue to be honoured. There will also be the facility for purchasing 'Additional Pension' in the 2015 Scheme.
- 1995 Section members may access their 'Added Years' or 'Additional Pension' benefits at aged 60 without having to leave NHS employment or cease pensionable service in the 2015 Scheme.
2015 NHS Pension Scheme - Contribution Rates From 1st April 2014. The Department of Health has set out the proposed long-term member contribution rates which will remain until 31st March 2019.
- WTE Pensionable Earnings < £15,431: 5%
- WTE Pensionable Earnings between £15,432 - £21,477: 5.6%
- WTE Pensionable Earnings between £21,478 - £26,823: 7.1%
- WTE Pensionable Earnings between £26,824 - £47,845: 9.3%
- WTE Pensionable Earnings between £47,846 - £70,630: 12.5%
- WTE Pensionable Earnings between £70,631 - £111,376: 13.5%
- WTE Pensionable Earnings > £111,377: 14.5%
Employers contribution rates will be 14.3% from 1st April 2015.
2015 NHS Pension Scheme - Are You Aware Of The Retirement Flexibility Available To You? A recent Department of Health Report found that only a third of NHS Pension Scheme members who retired between 2008 and 2012 accessed the available flexibilities.
Retirement Planning Options
- 'Wind Down'; members can opt to work fewer days in their current post rather than retiring completely
- 'Step Down'; members can move into a less demanding or lower graded post whilst being possible to not affect the final salary used to calculate pension
- 'Draw Down'; allows members to take part of their pension benefits whilst continuing in NHS employment (only available 2008, 2015 Schemes)
- Members with a Normal Pension Age higher than 65 can choose to pay additional contributions to remove any early retirement reduction which would have applied when taking their 2015 Scheme earlier than their NPA. This means that members 2008 and 2015 benefits could be taken in full at age 65 regardless of their 2015 NPA.
- There will be a facility to buy 'Additional Pension' in order to increase members' pension benefits to perhaps conincide with a preferred retirement date. The maximum Additional Pension that can be purchased is £6,500 per annum and the minimum is £250. Additional Pension can be saved for by making monthly contributions or by a lump sum.