NHS Pension Changes 2015 – Proposed Final Agreement

From Financial Tips! – Published every 4 weeks by Rutherford Wilkinson Ltd, written by Financial Planners Ray Prince and Graeme Urwin.

NHS Pension Changes 2015 – Proposed Final Agreement

On March 9th the Department of Health released a Proposed Final Agreement document for the NHS Pension Scheme following many months of debate.

Basically, it’s the governments final offer on what the NHS pension scheme will look like after 1 April 2015. The headline contents haven’t changed at all since the previous iteration of December 2011 (which the government referred to as the ‘Heads of Agreement’).

In a nutshell, we are still looking at a CARE (Career Average Revalued Earnings) scheme with an accrual rate of 1/54 of pensionable pay, the linking of the Normal Pension Age with the State Pension Age, and increases to employee contributions of 6% over the next three years.

Let’s take a look at the main proposals:

  • A pension scheme design based on career average (keep in mind that the General Pratitioners and General Dental Practitioners currently accrue NHS pension benefits on a CARE basis)
  • An accrual rate of 1/54th of pensionable earnings each year
  • Revaluation of active members’ benefits in line with CPI plus 1.5% per annum
  • A Normal Pension Age equal to the State Pension Age, which applies both to active members and deferred members (new scheme service only). If a member’s SPA rises, then NPA will do so too for all post 2015 service. Pre-2015 accrued rights will continue to be related to existing NPAs as will any  benefits accruing post 2015 to protected members
  • Pensions in payment to increase in line with inflation (currently CPI)
  • Benefits to increase in any period of deferment in line with inflation (currently CPI)
  • Average member contributions of 9.8%, with tiered contributions
  • Optional lump sum commutation at a rate of £12 of lump sum for every £1 per annum of pension foregone in accordance with HMRC limits and regulations
  • The current flexibilities in the 2008 section: early/late retirement on an actuarially neutral basis, draw down of pension  on partial retirement and ability to retire and return to the pension scheme will be included in the 2015 scheme
  • Ill-health retirement pensions to be based on the current ill-health retirement arrangements but with enhancement for higher tier awards to be at the rate of 50% of prospective service to normal pension age
  • Spouse and partner pensions to continue to be based on an accrual rate of 1/160th. For deaths in retirement, spouse and  partner pensions will remain based on pre-commuted pension
  • The current arrangements for abatement (for service accrued prior to and post 2015) will be retained
  • Lump-sum on death in service will remain at two times actual pensionable salary
  • For members wishing to retire before their state pension age there will be an opportunity to pay additional contributions to fund earlier retirement of up to 3 years early without an actuarial reduction
  • Added Years contracts in the 1995 section will continue on compulsory transfer to the 2015 scheme
  • Additional pension arrangements will continue
  • The operation of the Public Sector Transfer Club will be subject to further consideration and discussion between schemes

Some of the transitional protection includes:

  • All accrued rights are protected and those past benefits will be linked to final salary when members leave the scheme. Existing arrangements with respect to the Uniform Accrual  Formula for Medical Health Officers (MHOs) will continue to apply for staff who move to the new arrangements
  • All active NHS Pension Scheme members in the 1995 arrangements with a pension age of 60 or 55 who, as of 1 April 2012, have 10 years or less to their current pension age, including MHOs and members of the special classes, will see no change in when they can retire, nor any decrease in the amount of pension they receive at their current Normal Pension Age. This will be achieved by allowing such members to remain in their current arrangements until they retire
  • The current rules requiring staff in the 1995 scheme to retire, take all benefits and be prohibited from further pension scheme membership will be retained but with the following changes. Staff on taking their 1995 benefits after the age of 55, will be able to defer their 2015 benefits but without the possibility of further accrual
    Indicative Contribution Rate Structure (before tax relief)

Earnings                        11/12     12/13   13/14   14/15

£48,983 to £69,931      6.5%      8.9       11.3     12.5
£69,932 to £110,273     7.5%      9.9       12.3    13.5
Over £110,273                8.5%    10.9       13.3    14.5

The Financial Tips Bottom Line

From April 2015 the NHS pension scheme will be changing for all members. We’re certain the government will stick to their guns with the Proposed Final Agreement, but it will also be interesting to see whether doctors do vote for industrial action.

Action Point

The BMA in particular have been quite vociferous about the proposed changes. Starting on Monday 19 March they are running a series of roadshows where doctors can find out more details about the proposed changes and how they will be affected.

You can also see how much you stand to lose by visiting the modeller on the BMA’s website. BDA members can read their views here.

You can download the full Proposed Final Agreement document here.

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