Association of Independent Specialist Medical Accountants nine-part tutorial for Practice Index – Introduction

Does thinking about the NHS Pension Scheme give you that sinking feeling? Do you groan every time there’s an update to the rules and regulations? Even the most dedicated pension enthusiast can struggle with the complexities of the scheme.

This nine-part tutorial will help you get to grips with the basics and has been put together for Practice Index by Andrew Pow, James Gransby, Deborah Wood and Lizzy Lloyd of the Association of Independent Specialist Medical Accountants – a network of over 75 UK firms working with over 3,800 practices across the UK and representing the very best brains in GP practice finance.

Note:

This guide should not be interpreted as financial advice since guidance and legislation can change from year to year. It’s a good idea to check the NHS Business Services Authority website, which has the latest information and updates, before making any important decisions. https://www.nhsbsa.nhs.uk/member-hub

Part 1: Overview

Updates post-Budget 2023

Is the NHS Pension Scheme a good scheme?

Most financial advisers and accountants would agree that it’s a good scheme. It provides pension and other valuable benefits and is not exposed to the performance of stock markets or other financial investments.

Instead of benefits being paid from a pension fund, they are paid out of contributions from current members of the scheme. This is an equation that needs to be juggled and from time-to-time contribution rates need to be reassessed (see Part 3 of this guide which covers recent proposals for contribution changes after October 2022).

What benefits does the scheme provide?

The most obvious is a pension – which in simple terms is an income paid in retirement. It does not replace the state pension but is in addition to it.

There are three different parts of the NHS Pension Scheme:

1. The 1995 section
2. The 2008 section
3. The 2015 section

All have different normal retirement ages (NRA). This is the age when benefits can be taken without them being impacted by early retirement factors.

That doesn’t mean members have to retire at the NRA – it’s possible to retire earlier with a reduced pension or, indeed, retire later. From October 2023 there will also be more flexibilities available in certain circumstances to allow for partial retirement. This will allow members to access some of their pension while continuing to contribute to the 2015 section.

Often overlooked are the other benefits the scheme brings. Principally these are:

1. Death in service benefits should a member die in service
2. Death in retirement benefits ensuring that a pension continues to be paid out at a reduced level to a surviving spouse
3. Ill health retirement benefits. These allow a pension to be paid out earlier if the member can no longer work due to ill health. The amount payable will vary depending on the circumstances.

The three parts: 1995, 2008 and 2015

The three parts of the NHS Pension Scheme offer different benefits. Some members may be in just one part of the scheme. Many other members will find that their benefits are currently in two parts of the scheme. More of that in a later section which sets out the impact of an important recent legal decision (the McCloud judgement) affecting periods of membership between April 2015 and March 2022.

Which parts of the NHS Pensions Scheme you are in will depend on when you joined and whether you have had a break from the scheme, either voluntarily or through a career break of more than five years. Some 1995 members may have also exercised a pension choice exercise to move their 1995 benefits to the 2008 section.

So what are the differences? Some key points

1. The Normal Retirement Age

In the 1995 section the NRA is 60, in the 2008 section it’s 65 and in the 2015 section the NRA is the same as your state pension age. So, if the government changes the state pension age, the NRA in the 2015 scheme will change too.

There are some earlier NRAs for special classes of primary care staff – principally nurses, physios, midwives and health visitors who were members of the pension scheme before 6 March 1995. Mental Health Officers also have special rules applied to them.

2. How the pension is calculated

The way in which the pension is calculated will depend on which of the three parts of the scheme a member belongs to. When it comes to calculations there is also an important distinction between ‘officer’ and ‘practitioner’ members. Officers are staff in the practice and non-GP partners. Practitioners are GPs, including partners, salaried GPs and locums.

Part 2 of this guide will cover calculations in more detail.

3. Do you get a tax-free lump sum?

The 1995 section gives an automatic tax-free lump sum of 3 x the pension on retirement. This can be boosted by giving up some entitlement to a pension.

The 2008 and 2015 sections do not offer an automatic lump sum. They are designed to give a slightly bigger pension which can be partly given up for a lump sum if the member wishes.

4. Death in service and ill health benefits

Again, these differ according to which part(s) of the scheme the member belongs to. There will be more detail about this in Part 4 of the guide.

In summary, the NHS Pension Scheme is complicated and knowing which part(s) of the scheme a member belongs to is a good starting point.

To read part two, click here.