The NHS Pension Scheme: An introduction

Alec Collie, Head of Medical at Wesleyan

Welcome to Wesleyan’s simple guide to the NHS Pension Scheme.

It’s designed to help you get to grips with the basic principles of the Scheme, but pensions can be complicated, so it’s always worth getting advice if you are unsure about anything.

How does the NHS Pension Scheme work?

The current NHS Pension Scheme (NHSPS) is known as a defined benefit scheme, which means that you are paid a guaranteed income after you retire.

When you start work in the NHS you are automatically made a member of the NHSPS, and money is taken out of your regular wage and put into your NHSPS pension pot.

The NHS pays into your pot too.

Because the NHSPS is a defined benefit scheme, your pension income is guaranteed to a certain level, no matter how much you have saved into your pension pot.

It’s a voluntary scheme, so you can opt out at any time if you want to.

Which section of the NHS Pension Scheme am I in?

The NHSPS has evolved over time and there are now three different sections.

If you joined before April 2008, you’re in the 1995 section.

If you joined between April 2008 and April 2015, you’re in the 2008 section.

And if you joined after April 1, 2015, you’re in the 2015 section.

However, if you have been an NHSPS member since before 2015, it’s very likely that you belong to more than one of the sections.

How much must I pay in to the NHS Pension Scheme?

If you are a current NHSPS member, you pay a proportion of your salary into your pension pot every month, which is called your contribution.

That proportion depends on how much you earn, as shown the table below.

On top of this amount, the NHS also pays a contribution into your pension pot.

No matter how much you earn, the NHS currently pays 23.7% of your wage into your pot every month.

Salary                              Your contribution                                  Employer’s contribution

£0 to £13,259                              5.2%                                                             23.7%

£13,260 to £26,831                  6.5%                                                             23.7%

£26,832 to £32,691                  8.3%                                                             23.7%

£32,692 to £49,078                  9.8%                                                             23.7%

£49,079 to £62,924                  10.7%                                                           23.7%

£62,925 and above                   12.5%                                                          23.7%

(These are the figures for England and Wales. In Scotland and Northern Ireland, the figures are slightly different.)

How much will I get paid when I retire?

The amount you are paid is calculated using a formula, which varies depending on which section of the pension scheme you’re in, and what kind of job you do.

For example, the level of income is calculated slightly differently for hospital doctors than it is for GPs.

Every August, the NHSPS will send you an Employee Contribution Statement, which provides a breakdown of the contributions you have made.

You can find the same information at the My NHS Pension online portal.

Your Statement also gives you an estimate of the annual income you will get from the NHSPS after you retire, though this could change over time.

Don’t forget that you should also receive a State Pension as well as your NHS pension.

When can I access my pension?

There are two options here.

If you work until your Normal Pension Age, you can then retire and receive your full pension with no reductions.

If you are in the 1995 section of the NHSPS, your Normal Pension Age is 60.

If you are in the 2008 section of the NHSPS, your Normal Pension Age is 65.

If you are in the 2015 section of the NHSPS, your Normal Pension Age is the State Pension age, which is currently 66, but it is gradually increasing.

Alternatively, you can choose to start claiming your NHS Pension earlier, when you reach your Minimum Pension Age, which is generally 55.

However, your monthly pension payment will be reduced, to account for the fact that you will be claiming it for longer.

How much lower your pension payment is will depend on which section of the NHS scheme you belong to and how early you’re retiring.

For example, if you are a member of the 2015 scheme and you retire one year early, your pension will be reduced by 5.4%.

If you retire five years early, that goes up to 23.1%, and it increases to 38.8% if you retire 10 years early.

Can I take my pension as a lump sum?

When you retire from the NHS, you’ll normally be able to take 25% of your pension as a tax-free lump sum.

The remainder is automatically paid to you monthly, but if you were paid weekly in your NHS job, then you can ask to have your pension paid weekly too.

What about tax?

You don’t have to pay Income Tax on any money you earn that you pay into your pension.

But – just like your salary – you do have to pay Income Tax on any part of your pension income that exceeds the tax-free Personal Allowance, which is currently £12,570.

Is there a limit on how much I can pay into my NHS pension?

Yes, there is.

At the moment, the largest amount that most people can pay into their pension every year without paying tax is £60,000, which is called the Annual Allowance.

For the highest earners, earning more than £260,000 a year, the Annual Allowance can be much lower.

Either way, if you go over the limit, your excess pension savings will be taxed at your highest tax rate.

For an additional rate taxpayer in England and Wales, that would currently be 45%.

However, if you have any unused Annual Allowance from the previous three tax years, you should be able to carry this forward and add it to your current Annual Allowance.

This would increase your current Annual Allowance and may stop you going over the limit, so you don’t have to pay any tax.

Can I pay more into my pension if I want to?

Yes, you can choose to pay more into your pension than your standard contribution.

Many people do this to build a bigger pension pot and improve their income in retirement.

There are two ways of doing this.

You can buy Additional Pension, which will be added to your standard annual pension when you retire.

You can either do this by making one or more single payment, or by regular monthly payments deducted from your pay, just like your normal pension contributions.

There is also the option to make Additional Voluntary Contributions; one off or regular payments into a separate pension account, which is invested to provide extra income for you in retirement.

That means that, unlike your main pension, the income generated by Additional Voluntary Contributions is not guaranteed and depends on the performance of the fund you invest in.

Both options are still tax free.

Can I keep working once I’ve taken my pension?

Yes, it is normally possible to take all or part of your pension and continue to work, but only once you have reached your Minimum Pension Age (normally 55) and only with the agreement of your employer.

It’s called taking Partial Retirement and it means you can take between 20% to 100% your pension while still working for the NHS.

Just like if you start claiming your pension before reaching Normal Retirement Age, your monthly pension payment will be reduced, according to a formula which depends which section of the NHS scheme you belong to and how early you’re retiring.

You will also need to agree a new working arrangement where your pensionable pay is reduced by at least 10%.

That could mean working fewer hours, taking less responsibility or moving to a different role.

If you’re thinking about taking Partial Retirement, speak to your employer to find out if it an option that’s open to you and what it would mean for your career and income.

What is McCloud?

As we know, the NHSPS has evolved over time and there are now three different sections: 1995, 2008 and 2015.

When the Scheme was last reformed in 2015, the new Scheme included protections for some older members, to make sure they would still get a pension that was at least equal to the one they could have expected under the previous Scheme.

But some younger members argued this was unfair, because they would not enjoy the same protections.

In 2018, the Court of Appeal agreed that this amounted to age discrimination and the Government came up with a solution, called the McCloud remedy.

It means that certain qualifying younger members will also now receive the same protections as those older members.

You may qualify for this if:

• You were a member of the NHSPS before 1 April 2012
• And you were also a member of the NHSPS anytime between 1 April 2014 and 31 March 2022
• And you never took a continuous break from the NHSPS for more than five years

If this includes you, you will be asked to choose whether you want any pension benefits built up between 1 April 2015 and 31 March 2022 – the so-called ‘remedy period’ – to be moved back into one of the older schemes, or kept in the newer 2015 scheme.

If you are affected, you will receive an annual statement laying out the implications of both choices, and when you reach retirement, you will be asked to choose between the two.

If you are unsure, it may be worth speaking to an accountant or financial adviser before you make a decision.

For more information on the NHS Pension Scheme or to speak to one of our team, please visit: https://www.wesleyan.co.uk/pensions-and-retirement/nhs-pension