NHS Pension Options

Have you received yours yet?

Over the last few years, the NHS has been working through the major changes to the NHS Pension Scheme. It’s now time for you, as a medic, to decide whether to stay in the old scheme or transfer to the new scheme. 

Is the new scheme really more generous than the old?

For many it seems strange that the new NHS Pension Scheme appears more generous than the old scheme, despite the public sector pension deficit being a gaping hole in this time of economic crisis.

Why the change?

The NHS Pension Scheme is an unfunded scheme, meaning there is no pot of money to fund the pensions of those in retirement. Instead, the contributions made by those who are working in the NHS go directly to paying the pensions of those who have retired.

Financially, the bill for unfunded public sector pension liabilities has been estimated by Neil Record for the Institute of Economic Affairs at £1,025 billion. That’s over £40,000 for each household. Source: Taxpayers Alliance 25 February 2010

In an effort to cut these liabilities, the Government has recently announced that it will be moving the index linking in retirement from a retail price index (RPI) link to a consumer price index (CPI) link. As CPI has historically trailed RPI, this change means that your income may not track inflation at the same pace.

So is the new NHS Pension Scheme more generous?

Whilst there are a number of factors that affect your end pension, the accrual rate is a crucial one. Simply put, this is the rate at which you amass your pension benefits. The higher the accrual rate, the more generous the scheme.

The new NHS Pension Scheme will be a 1/60th scheme in comparison to the 1/80th of the old scheme. For example, under the new scheme, if you have 40 years service, you retire on 2/3rds of your final salary as opposed to half. 

The income does not, however, give the full picture - there is also a tax free lump sum to take into account. Part of the pension income accrued has to be exchanged if you want a lump sum under the new scheme (unlike the existing scheme where the lump sum is in addition to the pension income). Nevertheless, even with this commutation taken into account, the new scheme is still more generous.

What’s the catch?

Your retirement age! The new scheme expects you to continue to work until the age of 65, not 60 as with the present scheme. 

This presents a dilemma if you wish to work past 60. Is it better to join the more generous scheme and accept penalties if you retire early? Perhaps you should consider flexible retirement, meaning you still draw a salary and a pension? There is no ‘one size fits all’ answer as other factors, such as discretionary points, superannuated management sessions and even your state of health, need to be taken into account.

When do I have to make a decision?

That is dependant on your age and where you are in the country. Most people will have a small window of opportunity of a couple of months in which to make a decision. This opportunity is a one off so you need to decide carefully. If you do nothing, you will remain in the old scheme.

What next?

Legal & Medical are running a series of NHS Pension Options seminars in November to go through the choices in more detail. To register your interest to attend one of these seminars, email This e-mail address is being protected from spambots. You need JavaScript enabled to view it or call 02031 671607.

We also run group seminars in departments on request. These take approximately 30 minutes and can be done at a time to suit you and your colleagues. To arrange a seminar for your department, practice or a group of colleagues (at no cost), request a group seminar, email This e-mail address is being protected from spambots. You need JavaScript enabled to view it or call 02031 671607.

Alternatively, talk through the options and how you personally will be affected with an L&M financial adviser.

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