NHS pension reforms require study

Part one of our five-week guide to the new rules urges GPs to learn quickly.

GPs need to bring themselves up to speed on the changes to the NHS Pension Scheme that take effect on 1 April.

Decisions they take, or fail to take, in the run-up to 1 April and later might mean they will be better or worse off when they retire. Under the reforms, there will be two NHS schemes: a revised scheme for existing members and a scheme for new entrants.

GPs in the existing scheme will be offered the chance to join the new scheme and the window of opportunity for this will be the period from 1 July 2009 to 30 June 2010.

The revised scheme is GPs' immediate concern and the table shows how this will vary from the current rules.

As you may be aware, while the employer's 14 per cent contribution rate will not change on 1 April, GPs' basic contribution rate will no longer be 6 per cent. What you pay will be 5, 6.5, 7.5 or 8 per cent depending on your annual NHS pensionable earnings.

The more you earn, the higher the rate and for some GPs, this will mean a sharp increase in contributions. However, this was the price exacted by the government for preserving a retirement age of 60.

The new contribution rates together with the earnings thresholds they relate to and the other main changes are summarised in the table. You can get a comprehensive overview from NHS Pensions at www.nhspa.gov.uk.

The details in the table apply to England and Wales but the schemes for Scotland and Northern Ireland are expected to introduce very similar changes from 1 April.

Added years deadline
One of the key initial decisions for eligible GPs will be to decide whether or not they wish to boost their pension benefits and tax-free lump sum by buying added years of NHS service.

If you want to do this, your 'expression of interest' must arrive at NHS Pensions by 31 March 2008 at the latest, and you must start paying your added years contributions by 31 March 2009.

This means that GPs considering this option should contact NHS Pensions or the pension/finance officer at their primary care organisation to request a contributions quote and an application form without delay.

Now is a good time to establish the level of NHS pension provision accrued to date so you and your financial advisers can estimate the amounts of extra pension you are likely to secure between now and when you retire. You can obtain the details of the benefits you have accrued to date by contacting NHS Pensions, with your personal scheme membership number or national insurance number.

Kevin Quinn is a certified financial planner at specialist medical accountants Ramsay Brown & Partners, www.ramsaybrown.co.uk



NHS Pension Scheme changes from 1 April 2008
   Existing scheme  Revised scheme
Normal retirement age 60 60
Minimum retirement age 50* 50*
Personal contribution rate
6% of annual pensionable earnings**Percentage of annual pensionable earnings†:
  • 5% up to £19,165;
  • 6.5% on £19,166
    to £63,414;
  • 7.5% £63,417
    to £99,999;
  • 8.5% on pounds
    100,000 plus
Fund value at retirementCareer average revalued revalued earnings
(CARE)
Career average revalued revalued earnings

 
Annual pension
 1.4% of CARE value 1.4% of CARE value
Tax-free lump sum 3 times pension (4.2% of CARE)3 times pension plus up to 25% pension value
can be foregone in
favour of increased
lump sums
NHS earnings cap £112,800‡Cap removed
 Annual contribution
limit
15 per cent of  annual NHS  pensionable  earnings Subject to HM Revenue & Customs annual
limit (£235,000 for 2008/9)
Dynamising (revaluing career earnings)
Based on annual change in GPs' average earningsIncrease in Retail Prices Index plus 1.5%

* Early retirement factors reduce benefits if take pension before age
60.
† The pay threshold you reach determines the contribution rate for all
your NHS earnings.
‡ For members who joined scheme after 1 June 1989.

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