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