Are NHS medics being penalised for working part-time?

What doctor or dentist doesn’t find the better, more varied work/life balance of part-time working enticing? Of course one of the downsides is a reduced income with, you would think, an equivalent reduction in your pension and annual pension contributions. Not so!

The financial cost of working part-time for medics

The 1995 NHS Pension Scheme rules for part-time medics

With the old 1995 NHS Pension Scheme, there were two variables that influenced the size of your pension: your salary and time.

Your salary

Your pension was based on the full-time equivalent salary for your post, not your actual earnings.

Time

Your pension was then time adjusted to reflect your part-time position i.e. you would be credited with ½ a point for a year’s service on a part-time basis compared to a full point for a year’s service on a full-time basis.

For example, let’s say Karen earns £45K working as a part-time NHS Consultant, a position that earns a full-time salary of £90K. All other things being equal, the value of her pension would be half what it would be if she worked full-time.

Your pension contributions

Your full-time equivalent salary also came into play when determining how much you contributed to your pension each year. You may need to scroll left and right if you’re viewing the table below on a small screen.

Tier Full-Time Pensionable Pay¹ Gross Contribution Rate² 1 April 2015 to 31 March 2019
1 Up to £15,431.99 5%
2 £15,432.00 to £21,477.99 5.6%
3 £21,478.00 to £26,823.99 7.1%
4 £26,824.00 to £47,845.99 9.3%
5 £47,846.00 to £70,630.99 12.5%
6 £70,631.00 to £111,376.99 13.5%
7 £111,377.00 and over 14.5%

¹ Used to determine contribution rate; ² Before tax relief

For example, even though Karen is working part-time, her £90K full-time equivalent salary means she would have contributed 13.5% (gross) into her 1995 NHS pension each year.

In other words, under the 1995 NHS Pension Scheme, her pension contributions would be the same whether she was working part-time or full-time.

Your pension value

Under the 1995 NHS Pension Scheme, it was the time variable that affected your pension value. In Karen’s case, the value of her pension would be half what it would be if she worked full-time.

Not brilliant but largely fair enough given that the value of your pension was based on your final full-time equivalent salary, and the final salary rules at the point of retirement.

The 2015 NHS Pension Scheme rules for part-time medics

Under the 2015 NHS Pension Scheme, the salary valuable is based on your career average salary (not your final salary) and the time variable has, to a degree, been removed.

Many would argue this makes it a fairer system, if not as generous as the 1995 Scheme, but is it?

Your salary and pension value

Your pension is based on your career average superannuated income. If you work part-time, your earnings will be less than if you worked full-time and this is reflected accordingly in the value of your pension.

Your pension contributions

Even though your pension value is now based on your actual earnings, your pension contributions are still based on your full-time equivalent salary.

For example, under the 2015 Scheme, Karen’s £45K part-time salary (not her £90K full-time equivalent salary) is reflected in the value of her NHS pension, yet she has to continue paying contributions of 13.5% into it.

In other words, by working part-time, she has to pay a lot more for her retirement benefits than she would if she worked full-time on the same salary.

What should you do?

The NHS Pension Scheme seems to be having its cake and eating it so to speak. While I’m told the BMA are aware of this issue and are lobbying to alter it, I can’t see this happening anytime soon.

The decision to work part-time is often one forced on us by circumstances or perhaps ill health. But, if it’s a lifestyle choice, it’s advisable to fully understand the impact your decision has on your pension before you go dropping those PAs or sessions.

It also doesn’t change the fact that the NHS Pension Scheme is still excellent value for money. Is the NHS Pension Scheme still good value for money? >

Do you think the lifestyle benefits of working part-time still outweigh the financial implications? Let us know by adding a comment below.

2 thoughts on “Are NHS medics being penalised for working part-time?

  1. Ron

    My wife has recently returned to work as a Specialty Doctor after a 10 year career break. She is working 2 days a week so earns £16k as WTE salary is £40k. She is paying 9% into the 2015 scheme and getting no tax relief this year as only started half way through the year. Will get 20% tax relief next year. As you say it seems unfair to have to pay the higher contributions but due to the employers contributions and Other NHS pension benefits I can’t imagine any private scheme could get close so thought it best to stick with it. She does also have 5+ years in the 1995 scheme and if she stays in this post her final salary would eventually be higher than it was when she worked previously but I’m not sure if it will be used for the final 1995 benefits calculation when she had 10 years out?

    Reply
    1. Owen Beswick

      Hi Ron

      I think your wife would be well advised to stay in the scheme. With reference to service within the ’95 scheme, the final salary will be being increased by CPI every year up until retirement and then beyond. It may be less than your wife’s “current” final salary but maybe the difference will not be that great in the end?

      Best wishes
      Owen

      Reply

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