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how to weigh up moving to the new nhs pension

november 2009

background

 

there are two different sections within the nhs pension scheme (nhsps).  gps who joined the nhsps prior to 1st april 2008 are in the 1995 section.  anyone joining for the first time on or after 1st april 2008 will be in the 2008 section.

 

1995 section gps in service on 1st october 2009 will, however, be given a one-off opportunity to transfer existing and future membership to the 2008 section under the nhs pension choice exercise (pce). 

 

pce packs will be issued to eligible gps on a “phased” basis, which is anticipated to start in january 2010 and end in december 2011. the packs will include personalised statements comparing the benefits gps could receive at different ages in both sections.  a choice form will also be included for gps to complete and return confirming their decision by the deadline stated in the pack.  the decision cannot be reversed and gps who do not return the form will remain in the 1995 section. 

 

this article outlines the main differences between the two sections for gps and highlights some of the circumstances that are likely to influence a decision to either remain in the 1995 section or transfer to the 2008 section.

 

1995 & 2008 section differences for gps

 

benefit/feature

 

 

1995 section

 

2008 section

 

normal pension age (npa)

 

 

60

 

65

 

minimum voluntary early retirement age

 

 

50

 

55

 

annual pension

 

 

1.4% of career average

re-valued earnings (care)

 

 

1.87% of care

 

minimum lump sum

 

 

3 times annual pension (1)

 

members who transfer to the 2008 section must take a lump sum equivalent to the minimum they had earned under the 1995 section at 31st march 2008 (1) 

 

 


 

 

voluntary early retirement

 

 

benefits reduced if taken before age 60

 

benefits reduced if taken before

age 65

 

 

late retirement factors 

 

 

not applicable

 

pension earned up to age 65 increased if taken later than 65

 

 

flexible retirement

 

 

further pension accrual not possible after benefits taken

 

 

can accrue further pension on return to nhs work after retirement.

 

notes: 

  • the minimum lump sum can be increased further (within hmrc limits) by giving up £1 pension for every £12 extra lump sum.

 

key terms applying on transfer to the 1998 section

 

  • gps under age 60 receive a “day for day” credit for 1995 section membership transferred into the 2008 section  
  • gps aged 60 or over receive a reduced credit according to age  
  • transfer to the 2008 section is not possible without moving 1995 section membership  
  • contributions are the same for both schemes 
  • added years (ays) not available under the 2008 section.  existing ay contracts cease and gp receives a credit in 2008 section for ays purchased to the point of transfer

should i transfer?

 

undoubtedly, the main factor that will determine whether a gp will be better or worse off in the 2008 section will be the age at which they plan to retire.

 

this is because gps in the 1995 section who plan to retire on or after age 60 can do so without penalty, however, gps retiring from the 2008 section before age 65 would incur a penalty.

 

as a general rule (assuming normal circumstances apply), gps who plan to retire before age 63 are likely to be better off remaining in the 1995 section, whereas those who plan to retire after age 64 would be better off transferring to the 2008 section.  

 

by way of example, if a gp with re-valued (dynamised) lifetime nhs pensionable earnings of £3 million retired at either age 60 or 65 and took the same lump sum from both schemes, their potential benefits would be as follows:


 

 

retirement age

 

 

1995 section benefits

 

2008 section benefits

 

60

 

 

£42,000 pension

 

£126,000 lump sum

 

 

£32,214 pension

 

£126,000 lump sum

 

 

65

 

 

£42,000 pension

 

£126,000 lump sum

 

 

£45,600 pension

 

£126,000 lump sum

 

 

 

other factors could also be important depending on personal circumstances and for most members, the main reasons for either remaining in the 1995 section or transferring to the 2008 section are likely to be as follows:

 

reasons for remaining in the 1995 section

 

  • plan to retire before age 63 as benefits are likely to be better  
  • plan to take benefits before age 55 as this is not an option in the 2008 section  
  • want to maximise added years contracts as added years purchases cannot continue in the 2008 section.      

 

reasons for transferring to the 2008 section  

  • gp is certain they will retire after age 64 as benefits are likely to be better   
  • wish to utilise the flexible retirement options as these are not offered in the 1995 section

 

these circumstances and reasons are not exhaustive and gps who are unsure about which section is appropriate for them personally should seek guidance from their financial adviser before making a decision.

 

resources

 

nhs pensions have a dedicated pce section on their website at www.nhsbsa.nhs.uk/pensions

 

kevin quinn