News & Views Retirement NHS Pension Scheme - The New vs The Old
NHS Pension SchemeNew vs Old: The Key DifferencesThe NHS pension options should now be firmly in your grasp but how do you decide whether to remain in the old NHS Pension Scheme (1995) or transfer into the new one (2008)? Here are the key differences to help you make an informed decision. Pension benefits: New more generous than oldIt surprises many that the new NHS Pension Scheme is more generous than the old. This is down to what is known as the accrual rate - the rate at which you amass your pension benefits.
Added yearsFor doctors and dentists who have taken out added years, the pension forecasts of the old scheme have a much higher degree of clarity. Because the added years are removed in the new scheme, the old scheme has certainly looked more favourable in all the projections that we have seen to date. The above also applies for those dentists and GPs who work on a career average revalued earnings (CARE) system. Normal retirement age: 65 (new scheme) vs 60 without penalties (old scheme)
Whilst you can retire at 60 on the new scheme, you will be penalised for doing so. By retiring 5 years earlier than the stated normal retirement age, you’ll take a 26% reduction in pension income. In essence, the closer you are to age 65 when you retire, the more attractive the new scheme becomes. After speaking to clients, many wish to retain the option to retire at 60 or soon after and have therefore decided to remain on the old scheme. Under the old scheme, there’s also, in some cases, an option to draw your pension at 60 but continue working. This is known as flexible retirement and should be taken into consideration - it would mean you’re in a position to draw your salary as well as your pension. Normal retirement age: What’s that?Of course, there’s a caveat to all the above. If Lord Hutton’s recommendations go through, the normal retirement age for all NHS pension members could be linked to the state retirement age, irrelevant of what scheme you are on. Timing?Once you’ve received your projections from the NHS Pension Scheme, you have approximately an 8-12 weeks window to make your decision. It’s a one time window of opportunity so you should ensure that whatever decision you make, it’s an informed decision. Article by Max Spurgeon  |
The new scheme is a 1/60th scheme compared to the old 1/80th scheme. In simple terms, the lower the ratio the more generous it is. Assuming all other factors are equal, the new scheme would therefore provide NHS pension members a bigger pension.
The normal retirement age for the new NHS Pension Scheme is 65, compared to the old (current) scheme which allows you to retire at 60 without any penalties.