NHS pension discrimination – your questions answered
Stephen Barry shares what you need to know about NHS pension discrimination and answers some common questions.
Understanding the NHS pension, which scheme you are in and what this means for your retirement plans is confusing.
It’s easy to see why. Particularly when you take into account the different schemes and their varying parameters and rules about retirement ages etc. Plus, the fact that your individual circumstances and plans for retirement can impact what the best steps are for you.
This situation is complicated further. Some of the transition rules around the 2015 scheme have now been deemed discriminatory.
Recently I, along with my colleague Karen Pincher, held a webinar for dentists looking at the background to this situation, the proposals to remedy it and answering questions from those attending. You can still watch that webinar here.
Below, I have shared both the background that led to these proposals, what they mean, in a nutshell, to members of the NHS pension schemes, and also some of the dentists’ questions and our answers from that webinar.
Why are they reforming the NHS pension scheme?
In 2018 the Court of Appeal found that public sector pension reforms instigated three years earlier, had unlawfully discriminated against younger members of the judicial and firefighters’ schemes.
The government then accepted this decision applied to all of the public sector, including the NHS. Now, they have come up with proposals to address this discrimination.
Who do the new proposals apply to?
These proposals apply to you if you were in service before 31 March 2012 and on or after 1 April 2015.
This includes members who were in service on 31 March 2012 and then took a qualifying break of less than five years. As well as members who left pensionable service, or who took their pension benefits after 1 April 2015.
What do the new proposals suggest?
Members of the pension scheme are given a choice about which pension schemes they wish to receive benefits from during the period from 1 April 2015 to 31 March 2022 (known as the remedy period). This choice is between the legacy scheme, which for the NHS is the 95 or 08 sections, or the NHS 2015 scheme.
The government is considering two possible approaches to this:
- An immediate choice, where members can ask to make their choice within 12 to 24 months after 31 March 2022
- ‘Deferred choice underpin’ (DCU), where members can ask to make their choice when they access benefits.
In both cases, those members who have already taken benefits will make their choice as soon as possible after 31 March 2022. It will then apply retrospectively.
The government is also proposing that all active members move into the reformed scheme on 1 April 2022. This will mean that anyone still contributing to the scheme on 1 April 2022, will move into the 2015 scheme.
Your questions answered
The number of questions we received during our webinar on NHS pension discrimination, highlighted just how difficult to understand many people find this topic. Below are just some of the questions from dentists and our answers.
It is always worth bearing in mind that the best route to retirement that maximises your pension pot will depend on your individual situation and the kind of lifestyle you have/plan to have post-work.
Can I retire but not take my pension until state retirement age to avoid reduction?
Absolutely. Just because you retire from the NHS, it doesn’t mean you automatically have to take your pension benefits.
There are a number of options within the pension scheme when it comes to accessing your funds. You don’t have to work until retirement age.
The key is understanding how to make the most of the provision you have and at what age to retire, considering your particular set of circumstances. Base this decision upon when you would like to stop working and how much income you need.
Could I contribute to the NHS scheme and buy extra years to retire sooner?
If you have an existing added years contract, the government is still honouring these. But you can no longer purchase additional years (unless you’re eligible for half-cost years, but that is highly unlikely).
If you are on the 2015 scheme there is an early reduction buy-out option.
Under the early reduction buy-out, you can buy-out a maximum of three years. This allows you to retire three years prior to the scheme retirement age (but not earlier than age 65), with no reduction in your pension.
For example, if you want to retire at 58 and your state retirement (and NHS pension age) is 68, you can buy-out three years. This means there is still a reduction, but it is only calculated on seven years (from 58 to 65), rather than 10 years (from 58 to 68).
You can also purchase additional pension in chunks of £250 of annual income from the NHS.
Whether this is the best course of action depends on what you want to do in retirement. As well as what other income and money you have to support you.
If I started in the 1995 scheme and am now a member of the 2015 scheme, do I need to amalgamate them into one scheme?
No, you are not able to combine both schemes. Each scheme has different rules around how you accrue benefits and when you can take benefits. Along with implications on future pension membership.
I have been with the NHS superannuation scheme for 35 years plus and the value of my pension now exceeds my lifetime allowance. I am 65 years of age now and still working. Should I take the pension now and what are the benefits of doing so?
Whether you take the pension depends on a number of factors. What have you planned for retirement? What are your requirements and existing arrangements for income and capital? Both now and in retirement.
Are you a principal dentist? If so, have you considered the impact of taking benefits on your NHS contract, and the goodwill and future sales value of the practice?
Whilst you may have exceeded the lifetime allowance, are you eligible to apply for retrospective protection. This could increase your lifetime allowance?
Is it possible to take your 1995 scheme benefits at 60? Then defer the remaining pension benefits from the 2015 scheme to state pension age?
Yes, it is. Your pensions only pay out upon completion of the appropriate claim forms. And each scheme the government treats as separate.
Therefore your 2015 scheme would not pay out automatically. Either at the point of drawing your 1995 benefits, or at your state pension age.
You would need to physically apply for each section of the pension at the time that you wish to draw the benefits.
If you do take your 1995 scheme benefits, you cannot contribute any further into the 2015 NHS pension scheme.
If you did take the benefits and carry on working, you cannot accrue further pension within the defined benefit scheme.
And if you are working as an employed dentist, you would be offered a group personal pension under auto-enrolment rules. If you were a self-employed dentist in practice your only option is to fund a personal pension.
It is always best to sit down with a financial consultant and talk about what you want to do in retirement. They can help you to put together a personalised plan that extracts the most benefits in the most efficient way for you.
Advice is provided by Wesleyan Financial Services Ltd.
Stephen Barry has been a Senior Financial Consultant at Wesleyan Financial Services for over 11 years. Having previously worked at Colgate, Stephen has been immersed in the world of dentistry for over 15 years.