Crunch time is fast approaching for GPs who plan to boost their NHS pension by taking out a contract to buy added years of NHS service.
When the revised NHS Pension Scheme (NHSPS) for existing members starts on 1 April 2008, the added years option will disappear unless you 'express an interest' by 31 March 2008 or already have a contract at that date.
GPs who plan to retire by 31 March should review this decision because it might be advantageous to delay until 1 April or later.
Express an interest
If you want to buy added years, you can express an interest either via your primary care organisation (PCO) or directly to NHS Pensions or the equivalent in Scotland or Northern Ireland (see Resources box).
If you decide to go ahead the contract must start on your birthday by 31 March 2009.
Added years will increase your NHS pension and tax-free lump sum at retirement-based on your uprated (dynamised) lifetime NHS pensionable pay to offset earnings inflation.
Added years contracts run to either age 60 or 65.
They will provide a larger pension for your dependants if you die before your contract ends. Your own pension benefits will be enhanced if you retire early on ill-health grounds before the contract ends.
In both cases, the added years value for the entire contract period will be included in your uprated NHS earnings at no extra cost.
NHS Pensions can calculate the maximum number of added years that you are eligible to buy. The cost will be a percentage of your annual NHS pensionable earnings payable to 60 or 65 years.
Alternatives to added years are the NHSPS's additional voluntary contributions (AVCs) scheme or 'free-standing' additional voluntary contributions (FSAVCs) that you arrange yourself outside the NHSPS. Both are money purchase arrangements and your contributions are invested in a private sector pension fund.
Pension benefits depend on the pension fund's investment performance and on future annuity rates. Stakeholder pensions and personal pensions including self-invested pension plans (SIPPs) are also money purchase arrangements.
Whether added years are suitable for you depends on your personal circumstances, but in general they offer extremely good value as money purchase plans tend to require high rates of return to provide equivalent benefits.
Added years are however less flexible than other options and you can stop your contract only if you leave the NHSPS, retire or experience (severe) financial hardship. Because the added years' contribution is a percentage of your NHS pensionable earnings, the amount you pay each year can go up or down.
Expression of interest
An expression of interest in added years is defined as having requested a quotation or comparison or inquired about them by telephone, post or email.
For peace of mind, it might be best to write to your PCO or NHS pension authority and follow this up with a telephone call.
From 1 April, the NHSPS is introducing an alternative method of boosting existing benefits to replace added years under which members can buy an additional pension of up to £5,000 per annum when they retire.
There is currently no information available about the cost of the additional pension.
If the new scheme is costed in the same way as the teachers' additional pension scheme, provisional estimates suggest added years offer better value for money.
However, existing NHSPS members will be able to buy the additional pension regardless of whether they have an added years contract.
Retiring this year
If you are intending to retire by 31 March, depending on individual circumstances, it might be prudent to delay until 1 April 2008 or later.
This is because a number of enhancements will be made to the revised scheme for existing members including removal of the current rule that spouses/civil partners' pensions must cease on re-marriage/entering into a new civil partnership.
Also, if you are not married or in a civil partnership but have been in a financially dependant/interdependent relationship of at least two years' standing, by taking your pension benefits on or after the 1 April, your partner will be entitled to a dependant's pension if you die before them.
Under the existing rules, common law relationships do not attract this benefit.
Kevin Quinn is a certified financial planner at specialist medical accountants Ramsay Brown & Partners, www.ramsaybrown.co.uk
ADDED YEARS: THE KEY POINTS
- Existing contracts are not affected by the new rules.
- Option to start a contract will be withdrawn on 1 April unless you have expressed an interest by 31 March.
- As with the rest of your NHS pension, the value of your added years is uprated (dynamised) to offset GP earnings inflation.
- Unlike money purchase pension top-up schemes, added years provide guaranteed pension and tax-free lump sum benefits.
- Contracts can only run to age 60 or 65.
- Contracts can only be terminated early if you retire on ill health grounds, leave the NHS Pension Scheme or suffer financial hardship.
- England and Wales: NHS Pension Scheme, www.nhspa.gov.uk or (01253) 774774.
- Scotland: NHS Superannuation Scheme, www.sppa.gov.uk or (01896) 893 100.
- Northern Ireland: Health Personal Social Services (HPSS) Superannuation Scheme, www.dhsspsni.gov.uk/superann or (028) 7131 9000.