Retirement may be edging further away for NHS doctors and dentists. Work and Pensions Secretary Liz Kendall recently announced the return of an independent Pensions Commission, originally launched under Tony Blair, to help future-proof the UK’s pension system. This review, expected to deliver its recommendations by 2027, could lead to an increase in the State Pension age. Since the Normal Pension Age for the 2015 NHS Pension Scheme is directly tied to the State Pension age, this could mean waiting longer to access your NHS benefits too.
Currently set at 66, the State Pension age is already due to increase to 67 between 2026 and 2028. Further changes could push this even higher, significantly altering retirement timelines for NHS doctors and dentists.
A Financial and Demographic Tipping Point
At the heart of this review lies a growing financial dilemma. The state pension bill has soared to around £124 billion a year, driven by increased life expectancy and an ageing population. With the number of retirees increasing faster than the working-age population funding them, the sustainability of the system is under pressure.
The “triple lock” guarantee, ensuring pensions rise with inflation, average earnings, or 2.5%, whichever is highest, has become significantly more expensive in recent years. Without reform, critics warn, the current system may not be financially viable in the long term.
What Will the Review Examine?
The new Pensions Commission will conduct two core assessments.
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State Pension Age Timeline
The first assessment will review the timetable for increasing the State Pension age. Under current legislation, the age is due to rise to 67 between 2026 and 2028, with a further increase to 68 anticipated by the mid-2040s. However, previous reviews have suggested accelerating this shift to the late 2030s, and the new commission could recommend bringing this forward.
As the State Pension age directly impacts the Normal Pension Age for the 2015 section of the NHS Pension Scheme, any changes could delay when NHS staff can access their full, unreduced pension benefits.
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The Health of Private Pensions
The second strand of the review will focus on the health of the UK’s private pensions sector. Despite the rollout of auto-enrolment in workplace pensions over the past decade, millions of workers, particularly those who are self-employed or in insecure employment, continue to save insufficiently for retirement. According to recent data, 45% of working-age adults in the UK are not saving into a pension at all.
The Commission will explore ways to increase pension participation, including:
- Lowering the auto-enrolment starting age.
- Increasing minimum contribution rates.
- Introducing flexible schemes such as “sidecar pensions” that combine long-term savings with short-term emergency funds.
There has been no mention of mean testing. You can read more about the Commission’s goals in the official government publication.
What could this mean for you?
Although no immediate changes are planned, the review is likely to affect those born between April 1960 and April 1977, who, under current plans, will retire at age 66 or 67.
If the review results in a move to age 68, this could mean:
- Longer working lives and a longer wait to access both state pension and unreduced NHS 2015 pension benefits.
- A greater reliance on personal savings, private pensions or investments if retiring earlier than the revised pension age.
Remember, you can access your NHS pension before the ‘Normal Retirement age’, but in doing so, you will attract early access penalties, thus reducing both your long-term taxable NHS pension and your tax-free lump sum.
Other Financial Considerations
From 2027, personal pensions will fall within the Inheritance Tax (IHT) regime, potentially affecting estate planning. Tighter annual allowance rules could limit how much you can save tax-efficiently in a pension.
Investment vehicles like ISAs and GIAs are also under pressure with reduced Capital Gains Tax allowances and increased market volatility. Given this complex environment, reviewing your retirement strategy, especially how your NHS Pension fits into your wider financial plan, is more important than ever.
Looking Further Ahead
For younger generations, the implications could be even more significant. As the pension age shifts in line with life expectancy and economic realities, it’s entirely possible that future retirees won’t access full pension benefits until their 70s!
It may be worth starting a pension for your children to help mitigate such a future. No such thing as starting ‘too young’!
The Road Ahead
The revived Pensions Commission will be chaired by Baroness Jeannie Drake, a seasoned pensions expert and one of the original architects of the auto-enrolment system. She is tasked with producing two assessments discussed above by 2027.
Any recommendations will need to be debated and passed through Parliament, meaning changes will take years to implement. But the direction of travel is clear: the UK’s retirement landscape is shifting, and both the government and individuals will need to adapt to the growing focus on greater self-reliance.
What Should You Do Now?
Whether you already have a retirement plan or are just getting started, this is a crucial time to evaluate your current position.
Ask yourself:
- Can I afford to retire before 68?
- Am I maximising my NHS Pension and other savings?
- How will potential policy changes affect me or my family?
If you’re unsure, now is the time to speak with your financial adviser. Reviewing your plan today could help you stay in control of your future.
The concepts and suggestions in this article must not be viewed as advice. As always, we recommend you approach a Financial Adviser who will take your circumstances into full consideration before providing advice.