The UK Government introduced a NEW NHS pension scheme which will replace both of the earlier schemes with effect from 1 April 2015 which will have a retirement age in line with State Pension age. In the long term this is going to be age 68.
NB! Service that you have achieved up until the transition will be preserved on the same basis (bar future accruals) until the existing scheme retirement age.
Definitions of final salary remain unchanged
Existing members will have two NHS Pension Schemes
1995 or 2008 membership up to the day you join new scheme
2015 scheme membership
The major changes under the proposed scheme are:-
CARE Scheme for Salaried Officers
New CARE Scheme for Practitioners
New accrual rate of 1/54th (no lump sum cash)
Uprating of benefits at CPI + 1.5%
Retirement age in line with State Pension Age 66 - 68
Commutation unchanged on '2015' scheme
Ill Health Retirement on '2015' scheme to continue to operate a 2 tier scheme, tier 2 benefits based upon 50% of future service.
Spousal pensions to continue to accrue on 1/160th basis ('1995' scheme)
For members of the '2015' scheme with a NRA of 66, 67 or 68 can buy protection against early retirement penalties
Chief Secretary to the Treasury provided a 25 year guarantee (scheme fair and sustainable).
Added Years contracts already in place can continue
Can I still retire at age 60 or 65?
Your '1995' Section benefits would remain payable unreduced from age 60, however to draw these you would still need to retire.
Your "2008" Section benefits would remain payable unreduced from age 65, however to draw these you would still need to retire.
Your benefits from the CARE arrangement would have to be drawn at the same time, and would be reduced if retirement was below normal pension age, which is the age at which you are entitled to draw your State Pension.
Upon retirement you must draw all your benefits, with your pension being uprated/reduced depending on your age at retirement and the age at which each part of your pension can be taken without reduction
So can a '1995' scheme member retire at 60 still?
But, has to draw '2015' scheme benefits at the same time
…or deferred benefits to state retirement
So can a 2008 scheme member retire at 65 still?
But, has to draw '2015' scheme benefits at the same time
…or deferred benefits
Message – if you still want to retire at 60 or 65 you need to plan now more than ever before!
2015 Scheme FAQ's (+) Click to open
When will the new arrangements be implemented?
The Government implement these changes from April 2015. However, as part of the offer, some protection is offered for staff. This will mean some members will not have to move to the new pension scheme at all and others will move at a later date.
What are the terms of protection for members?
All members who have a normal pension age of 55 or 60 and are within ten years of that age on 1 April 2012 will retain their current pension arrangements and there will be no need for them to alter their retirement plans as a result of these changes.
Members who were between ten years and thirteen years and five months away from their pension age will have tapered protection. This will mean that they will move to the new scheme with a pension age equal to their state pension age at some point between 2015 and 2022. The closer they are to ten years from pension age, the later that date will be.
For members who are not covered by protection, what happens to the pension they will have earned up to 2015? Will members have to wait until their state pension age to access it?
No. The pension members have earned up until 2015 is protected and they can access it in full at their current normal pension age. Their pension will be linked to their final salary at the time they leave or retire. If members have a pension age of 55 or 60, they will be required, as now, to retire and leave the pension scheme when they take their benefits. This means that members will either have to take any additional 2015 benefits with a reduction as they are taken early, or defer accessing them to a later date.
Individuals will be able to come back and work for the NHS without it affecting their pension with their employer’s agreement, although for the first month they can only work a maximum of 16 hours a week. Member of the special classes will be subject to abatement between the ages of 55 and 60. This means their new salary and pension cannot be worth more than their salary before retirement.
For those who have a pension age of 65 they will be able to take benefits and continue working, and building up more pension, as this is in the current rules of their scheme.
What are the main features of the new Scheme for members?
The main features of the new scheme are as follows:
it is a defined benefit career average scheme
it has an accrual rate of 1/54th of pensionable earnings each year, with no limits to pensionable service
benefits earned whilst in service will be increased annually in line with a measure of price inflation, (currently the consumer price index) plus 1.5 per cent per annum to make some allowance for the fact that NHS pay in the long run increases by more than inflation
when a member retires or leaves the scheme, benefits will be revalued in line with inflation (currently CPI) only
member’s normal pension age will be the same as their state pension age
If state pension age changes in the future, a member’s normal pension age will also change. All member benefits in the new scheme will become payable from the new age
Member contributions to be paid on a tiered basis (as now) to produce a total yield of 9.8 per cent of total pensionable pay in the Scheme.
members will be able to opt to give up some of their pension for a tax free lump sum at the rate of £12 of tax free cash for every £1 per annum of pension given up (subject to a maximum limit)
In other respects, the new scheme looks very similar to the 2008 scheme with ill health retirement benefits, partner, spouses and dependent children’s pensions on the death of the member and death in service benefits remaining unchanged. There will also be retirement flexibilities enabling staff to take their pension and continue working and being members of the scheme allowing, for a flexible approach to mixing work and other commitments in the run up to retirement.
What is a career average pension? How does it compare with a final salary pension?
In a career average scheme, everyone earns the same proportion of their total salary in pension. In a final salary scheme those who have a number of promotions tend to do better than those with flat careers. In his report, Lord Hutton said that career average pensions were fairer.
In the NHS career average pension scheme members will earn 1/54th of their annual salary each year in pension. This is then increased by CPI plus 1.5 per cent per annum until members retire. So if a member earned £27,000 per annum, they would earn 1/54th of this (£500) in pension. If in the next year CPI was 3.5 per cent then their pension would be increased by 3.5 plus 1.5 per cent = 5 per cent. So their £500 would be worth £525. If their pay remained at £27,000, members would also add a further £500 of pension so after two years they had £1,025 of pension saved. This continues until the member retires.
In a final salary scheme members would instead receive a credit of 2 year’s service. In the current 2008 scheme members would have earned over that same period 2/60ths of their final salary on retirement. What members get at retirement depends on how much their salary grows.
What changes are being made to the state pension age?
The state pension age for women will be equalised with men by rising to age 65 by November 2018. From December 2018, the state pension age for both men and women will start to increase to reach 66 in October 2020. The state pension age will then increase to 67 between 2034 and 2036 and 68 between 2044 and 2046. The changes affect women born on or after 6 April 1953 and men born on or after 6 December 1953.
(The government announced on 29 November 2011 that state pension age will now increase to 67 between 2026 and 2028. This change is not yet law and will require the approval of Parliament.)
Details of the changes to state pension age can be found on the Department of Work and Pensions website.
What happens to a member’s pension if their state pension age increases?
If a member’s state pension age rises, then the age at which they can take their 2015 benefits rises in line with that. Members will be able to take their benefits at any age after 55 but there will be an actuarial reduction if it is before their state pension age.
What does this actually mean for my staff who are members of the NHS Pension Scheme?
Apart from those staff within ten years of their pension age, it is likely that staff will need to work longer in order to get the same pension that they would have received at 60 under the current arrangements.
However, the effect of protection of past pensionable service and the higher accrual rate of 1/54th means that if they work until their state pension age, then they are very likely to receive a bigger pension than they would have received at 60. Scheme actuaries have estimated that a 40 year old member of staff moving from band 5 to band 6 over their career they would have to work until around 62 to get the same pension as they would have had at 60 under the current arrangements. For the 21 year old on the same career path, the age would be 64.
For a lower paid member of staff moving through bands 2-3, the 40 year old would need to work to around 62½ and the 21 year old to about 63 ½. For an average consultant the 40 year old would need to work to around 63 and the 24 year old junior to just over 66.
How does this final agreement relate to the increases in pension contributions?
The Department of Health has announced changes to the level of contributions made by NHS Pension Scheme members towards their pension which will come into effect on 1 April 2012. These range from no increase for those earning under £26,557 to 2.4 per cent for those earning over £48,982.
Because the Government gives tax relief on contributions, the maximum real increase next year will be 1.4 per cent for those earning over £48,982. Staff earning between £26,557 and £48,982 the increase will be 1.5 per cent (1.2 per cent net of tax relief). The remaining 60 per cent of the increase will be implemented over the following two years. The planned increases will be consulted on in due course in discussion with trade unions and employers
What will happen if a member is transferred out of the NHS?
The Government has said that all staff TUPE transferred out of the NHS will be able to remain in the NHS Pension Scheme. Currently this does not happen when staff are transferred to the private sector. The Government has also indicated that it will look at whether it is possible to agree that staff who work in non NHS providers delivering NHS services (such as social enterprises or independent health care providers) could be allowed access to the NHS Pension Scheme. In the changing NHS, these are potentially significant benefits for staff.
I thought the NHS Pension Scheme provided members with a pension worth 1/80th of a final year’s pensionable pay per year of membership. Why are references made to 60ths?
There are two separate sections to the NHS Pension Scheme - the 1995 Section and the 2008 Section. Different eligibility requirements apply for each section of the Scheme.
The 1995 Section provides members with a pension worth 1/80th of final year’s pensionable pay per year of membership, a retirement lump sum which is normally three times their annual pensions and has a normal retirement age of 60. This section closed to new members with effect from 1 April 2008.
All new NHS workers from 1 April 2008 are eligible to join the 2008 Section. This section provides members with a pension worth 1/60th of reckonable pay per year of membership and has a normal retirement age of 65.
As noted above the new Scheme is based on a defined benefit career average with an accrual rate of 1/54th, which is increased in line with the consumer prices index plus 1.5 per cent per annum.
I understand that members are able to access a retirement lump sum payment in addition to their annual pension. Are the retirement lump sum arrangements the same in the 1995 and 2008 sections?
From both sections of the Scheme members are able to take some benefits as a retirement lump sum.
In the 1995 Section members will receive a retirement lump sum which is normally three times their annual pension. Members also have the option of giving up some of their pension to get a larger lump sum. Members can receive £12 of lump sum for every £1 of pension they give up. Limits to the level of maximum lump sum are set by HMRC. In the 1995 Section this equates to approximately 5.36 times a member’s pension for the majority of cases.
In the 2008 Section there is no basic lump sum entitlement but members also have the option of receiving a retirement lump sum by giving up part of their pension. Members can receive £12 of lump sum for every £1 of pension they give up. Limits to the maximum level of lump sum are set by HMRC. In the 2008 Section this equates to approximately 4.28 times a member’s pension for the majority of cases.
Source: NHS Employers April 2015