Many of you have been in touch with Network Locum (now Lantum) asking for help with the NHS Pensions Choice 2 exercise in which members of the 1995 scheme have the option to move their existing benefits to the 2008 scheme. You only have until Monday March 16th to decide. Below, Lindsay Reynolds, independent financial adviser outlines the changes for you. Thanks to Lindsay for your help. Claire
From 1st April 2015 the NHS Pension Scheme (NHSPS) will again undergo significant changes.
For General Practitioners (GPs) who were born after August 1965 there will be an immediate move to the new Scheme (2015 Scheme) with transitional arrangements for older members. Those members born before April 1962 will not move to the 2015 Scheme. The main features of the 2015 Scheme are:
- It is a Career Average Revalued Earnings scheme for all Scheme members, not just GPs. Hospital Doctors currently have a final salary scheme. Your pension is based on your pensionable pay each year, revalued by inflation annually up to retirement.
- The pension is 1/54th of your pensionable pay each year. So If you draw £81,000 p.a. as a GP the pension accrued for that year is £1,500 (£81,000 / 54). This compares to the 1/60th or 1/80th build-up rate with the 2008 and 1995 Schemes.
- Your pension earned each year will be revalued annually by a set rate to account for inflation in the period before you retire. The current revaluation rate is the Consumer Prices Index (CPI) plus 1.5%. If you leave the NHSPS before drawing your pension and have more than 5 years out of the NHSPS, your pension benefits are deferred and only revalued in line with CPI when they come into payment.
- The age at which you can draw your 2015 NHSPS without penalty will now increase to your State Pension Age (SPA) which will be 67 by 2028. The current Scheme Normal Pension Ages (NPAs) are 60 and 65 for the 1995 and 2008 Schemes respectively.
- You can build-up benefits in the 2015 Scheme until age 75 with no limit to the number of years earnings that can be taken into account.
Doctors who are moved to the 2015 Scheme will build up separate benefits under that Scheme, with benefits already accrued in the 1995 or 2008 Schemes preserved. These preserved benefits can be drawn at 60 or 65 without penalty. For GPs, the preserved benefits from the date of moving to the 2015 Scheme will be increased in line with CPI +1.5% until age 60 or 65. If you want to take your preserved benefits at the Scheme’s NPA of 60 or 65 you have an option of drawing your 2015 Scheme pension at the same time. However, the benefits from the 2015 scheme will be actuarially reduced if they are taken before your SPA.
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If you want to draw your preserved NHSPS benefits you will need to retire from the NHS, though you can return to work after the required break. If you do that, doctors in the 1995 Scheme will not be able to continue building benefits in the 2015 Scheme when returning to work. However, returning doctors drawing 2008 Scheme preserved benefits can re-join the 2015 Scheme.
For a second time, doctors in the 1995 Scheme will be offered a one-off opportunity to convert their 1995 Scheme pension to the 2008 Scheme. This is known as Pension Choices Exercise 2 (PCE2) and the deadline for making the decision is generally three months from the date your PCE2 pack arrives.
There will still be the opportunity to buy Additional Pension in the 2015 Scheme of up to £6,250 p.a., and this can be done by regular contributions or single payments. A new provision exists for you or your employer to pay extra contributions so you can take your 2015 pension earlier than your SPA without penalty. Known as Early Retirement Reduction Buy Out (ERRBO) you cannot reduce your NPA by more than three years nor to less than 65.
You pay pension contributions based on your anticipated annual NHS GP earnings. Since 2008 there has been a tiered contribution structure and if you incorrectly assess your tiered contribution you have to pay the arrears to the Primary Care Organisation. Since April 2013 Locums have the employer contribution paid to them by the Practice as part of their fee. This amount is 14% of your gross Locum earnings minus 10%, which is considered to be expenses. You cannot pension Locum work carried out more than 10 weeks previously.
Lindsey Reynolds
Independent Financial Adviser
Medical Money Management
Email: lindsey.reynolds@medicalmoney.co.uk
This Blog does not have regard to the specific investment objectives, financial situation, or particular needs of any individual recipient/reader. It is published for information purposes only, and should not be construed as the provision of financial advice. Recipients should always seek professional advice before making any financial decision on the topic covered within this article.
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