Why NHS pension enhanced and fixed protection will be lost

Any active members of the 1995/2008 NHS Pension Scheme (as of 31 March 2022) will automatically move into the 2015 scheme on 1 April 2022 which will cause immediate loss of enhanced or fixed protection.Enhanced or fixed protection will be lost in NHS pension transferAs per previous news articles covering the McCloud judgement, all active members of the 1995/2008 NHS pension schemes will move into the 2015 scheme on 01 April 2022 for future accrual.  Some members had previously been able to remain in their legacy scheme but this entitlement will cease from the end of March 2021.  

Members with enhanced or fixed protection, who move and contribute to the 2015 NHS pension scheme from 01 April 2022 will lose their protection on the day they start to contribute to the 2015 scheme as the 2015 scheme is a separately registered pension scheme with HMRC. Enhanced and fixed protections are lost if a new pension scheme is joined other than in permitted circumstances (of which this isn’t one). And HMRC must be notified of this within 90 days.

Fixed protection and enhanced protection can also be lost if the member has had ‘benefit accrual’ within the NHS schemes. It’s likely that an active member of an NHS pension scheme will either have already lost their fixed protection or will be due to lose their enhanced protection at retirement. 

What is the benefit accrual?

Benefit accrual occurs within a DB scheme when benefits have increased by more than a permitted amount. Benefit accrual for fixed protection and enhanced protection are tested at different times – with fixed protection the test is ongoing each year, and protection could be lost at any point during a year if benefit accrual occurs. Whereas with enhanced protection the benefit accrual test only occurs when benefits are crystallised (or on earlier transfer) so enhanced protection wouldn’t actually be lost until that point, and HMRC wouldn’t have to be notified until then. If a member’s benefits haven’t increased by more than the permitted amount they wouldn’t have lost their protection whilst an active member of the scheme – but this would seem an unlikely scenario for most active members.

If any active member has retained their fixed protection or seems likely that they will keep their enhanced protection, as soon as they join the 2015 scheme in April they will definitely be losing their protection as a result of having joined a new scheme, rather than as a result of having had benefit accrual. So that is the point at which their protection is definitely lost if it hasn’t been before. And HMRC would need to be notified if lost at that point.

Do you have enhanced or fixed protection?

Any members who have either enhanced or fixed protection need to consider their lifetime allowance position carefully before 31 March 2022 and may need to take appropriate independent financial advice.

If enhanced or fixed protection is lost, HMRC must be notified within 90 days of the loss taking place, so by 30 June 2022 for anyone starting to contribute to the 2015 Scheme on 1 April 2022. 

Too much to take in? Too busy and need some help?

You may need a little guidance on how these changes will affect your pension, so do please get in touch with your financial adviser – sooner rather than later!

This article was written by our guest contributor – Threesixty Services.

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