Stephen Barry explains the recent choice exercise provided by the NHS, prompting some of its pension scheme members to review their choice of pension section.
What is the NHS choice exercise?
Following the introduction of the 2008 NHS pension scheme, members of the pre-existing 1995 NHS pension scheme (NHSPS) were given a choice as to whether they would like to move over to the new 2008 NHSPS. At the time, many dentists opted to remain in the 1995 scheme. Both the 1995 and 2008 NHSPS are now referred to as the legacy schemes.
The move from the 1995 to the 2008 section is referred to as a ‘choice exercise’ – this took place twice. The first time in 2008, when the 2008 scheme was introduced, and again in 2015 when the 2015 scheme was introduced.
The exercise in 2015 is referred to as ‘choice two’.
What are the main differences between the 1995 and the 2008 sections?
Perhaps the most notable differences between the two legacy sections, include the following:
- The age of retirement – for the 1995 section, this was age 60 for standard retirement. For the 2008 section this went up to age 65 for standard retirement
- Payment – members of the 1995 section were eligible for a lump sum payment. Members of the 2008 section were not entitled to a lump sum payment but benefited from a slightly faster pension accrual rate.
The 2015 NHSPS
In 2015, the government introduced changes to a number of public service pension schemes including the NHSPS. The reformed NHSPS 2015 was introduced on April 01, 2015. This differs from the 1995 and 2008 sections of the scheme, mainly due to two significant factors.
Firstly, the standard pension age is either 65 or your state pension age – whichever is later. Also the pension benefits received are based on a proportion of pensionable earnings throughout your whole career, meaning it is a career average revalued earnings (CARE).
However, for dental practitioners, the 1995 and 2008 sections were also CARE schemes, so the difference is less.
When the 2015 NHSPS was introduced, existing members who were close to retirement were allowed to remain in their existing legacy scheme and protected from the changes. However members who were more than 13.5 years away from their standard pension age on 1 April 2012 were moved to the 2015 scheme on 1 April 2015. These members were referred to as having no protection.
The Court of Appeal found that these changes discriminated against younger members of the scheme. The McCloud remedy or (public services remedy) has since been implemented to remove the age discrimination.
In response to the decision by the Court of Appeal, members that did not receive protection are now being asked to decide between receiving 1995/2008 or 2015 scheme benefits for their service between 1 April 2015 and 31 March 2022. This period of time is known as ‘the remedy period’ which describes the length of time the age discrimination identified by the Court of Appeal could have applied.
After 31 March 2022 all members of the NHSPS, regardless of their age, were moved to the 2015 scheme.
Choice two – a chance to review your decision
Some members of the NHSPS have recently been given a chance to reverse their Choice 2 decision if they chose to move to the 2008 scheme. This would mean that their service prior to joining the 2015 scheme would be returned to the 1995 section.
The decision they need to make as part of the McCloud remedy would then be between the 1995 section and the 2015.
The deadline for making the decision will be shown on the letter sent to affected members by the NHS, this should either be in May or June.
Choice two provides a good opportunity for those eligible to review their pensions and to assess their retirement plans.
For some dentists it may make more sense to remain in the 1995 section. However, for others, the 2008 section may be more beneficial. This can be for a number of reasons.
Which scheme is best for you?
For example, we know there are clients who due to a change in circumstances may have felt that they would benefit from moving from the 1995 to 2008 section, prior to 2015. For some this was due to a belief that they would work beyond 60 and near enough to 65 to benefit from the additional accrual.
Typically, these were clients who had either qualified late and already had expectations to work beyond 60 to build a sufficient retirement pot. Another scenario may be clients who had divorced and lost some of their NHS pension pot to their former spouse, as part of a pension sharing order and needed more time to build a sufficient retirement pot.
The last category were those clients who may have felt that the way the ill health retirement was calculated was likely to be beneficial to them in the event of being deemed insufficient to work. This could be due to the calculation for tier 2 benefits being based to 65 years of age, under the 2008 section, instead of age 60. These clients may well be thinking of opting to stay in the 2008 section.
It is important to note however, that some clients moved due to the retirement flexibilities offered by the 2008 section and not the 1995 section. As members now have the option of ‘retire and return’ phased retirement in the 1995 section, the 2008 section may no longer be favourable.
How can specialist guidance help you?
I would recommend any dentist to carefully think about this decision to consider what is best for their pension and indeed their retirement aspirations. A detailed review and report from a dental specialist financial adviser can help to fully assess the impact of keeping your pension in the 2008 section of the NHSPS.
Your adviser can help you to understand how your decision could affect your options when the time comes for you to retire, enabling you to make a better-informed decision that is right for you and your individual circumstances.
For further support and guidance to plan for the financial year ahead, speak to a dental specialist financial adviser at Wesleyan Financial Services by booking a no-obligation financial review or calling 0800 316 3784 or visit us at the Dentistry Show in Birmingham on 17-18 May 2024, at stand K50.
