News & Views Retirement Lord Hutton Report and Your NHS Pension
Lord Hutton's Pension ReportHow it's affecting your NHS PensionIt is now 6 months since Lord Hutton’s Independent Public Service Pensions Commission’s final report was published. In this report a number of key recommendations were made, some of which are already in place and are having a significant impact on virtually all NHS doctors and dentists. Why the changes and how does this affect you? Our Work Longer for Lower Pension article addressed the background and potential implications of Lord Hutton’s report at the time it was published. As a reminder, it was commissioned by the Government and Treasury Department alike to address the current unaffordable and unsustainable cost of public sector pensions to the tax payer. Under the existing system, contributions into public sector pensions are forecasted to be around £23 billion by 2015/16 with payments in excess of £32 billion. That’s a deficit of over £9 billion. Something obviously has to be done. Tackling the deficitThe changes now being made on the back of Lord Hutton’s report directly affect any doctor or dentist with an NHS Pension. So much so that it’s understandably the hot topic within the medical community, both online and at various industry events throughout the UK. From 2015 onwards, if the recommendations go through, your pension will be based on your career average revalued earnings (the CARE scheme) instead of your final salary. This will only apply for service built up after 2015. Any existing years of service and pension funds accumulated prior to 2015 will be ring fenced from the changes. Of course, already in place is the change from RPI (retail price index) to the traditionally lower CPI (consumer price index) as the measure of inflation. Whilst the impact of this might not be immediately noticeable to many, the accumulated effect of the historical c. 1% difference between RPI and CPI year on year will mean your pension is worth substantially less in retirement. However, the biggest, most notable difference relates to the proposed change in employee contributions for 2012/2013:
So, for example, if you’re a doctor or dentist earning £130,000 a year, you will have to contribute at least £152 net of tax more per month into your NHS pension. If you’re earning £60,000, you will have to contribute at least £60 net of tax more per month. Whichever way you look at, you’ll be out of pocket each month and that’s not all. Further increases to employee contribution rates are planned for 2013/14 and 2014/15! The above figures are before tax relief. How does all this affect your pension?
It will hit high earners more, particularly those under the age of 50 who plan on working for 10 or more years. The younger you are, the greater the impact the changes will have on your pension with some studies showing that this could be as much as 20%. So what do you need to do?Simply put, to be able to retire on the same planned pension, you will need to add more funds to your pension pot. Of course, every challenge brings an opportunity. Some doctors and dentists will see the changes as another reason to aim for early retirement and find alternative ways to fund their later years with less reliance and ties to the NHS. If you are concerned about how the changes affect you personally and your retirement plans, we recommend that you speak to your financial adviser to discuss your options. The BMA have also recently released a pensions modeler to help medical professionals calculate the potential financial impact of the pension reforms.
Article by Mike Rawson  |
Those earning between £48,983 and £69,931 will have a new contribution rate of 8.5% compared to 6.5%
Without doubt, the various public sector pension changes will result in lower pensions for nearly all NHS Pension Scheme members.