The 2015 NHS Pension scheme came into existence on 1 April 2015 with everyone under age 50 at that date transitioning to it. Since then anyone aged between 50 and 53 ½ at 1 April 2015 has also had a planned transition into the 2015 scheme on a phased basis.
In 2020 the government accepted that those pension members who transitioned to the 2015 Pension scheme on or after 1 April 2015 suffered discrimination on the grounds that they were treated differently from older members of the scheme. It was not that the scheme itself is illegal, more than the transitioning of some members was. The government has now put forward its plans to rectify this.
Who does it impact?
It applies to all members who were members of the 1995 or 2008 pension schemes (Legacy Scheme) prior to 1 April 2012 and who have been members of the 2015 scheme (Reformed Scheme) since 1 April 2015.
Why does it matter?
There are many differences between the schemes – but the key ones are:
- An automatic tax-free lump sum is available in the 1995 scheme but not the 2008 or 2015 scheme.
- The normal retirement age is 60 in the 1995 Scheme, 65 in the 2008 scheme, and State Pension Age in the 2015 scheme.
For 1995 scheme members, moving back to the legacy scheme will add up to 7 years of pension accrual to the scheme with a normal retirement age of 60 as it applies to membership from 1 April 2015 to 31 March 2022. In a lot of cases, moving back to the legacy scheme will produce a better pension position due to the earlier normal retirement age and the automatic lump sum. However, not all individuals will be better off, especially those who plan to retire later as the 2015 scheme has a higher accrual rate, so each case needs to be taken on its own merit.
So, what should I do?
It is important to stress that for now, you need to do nothing. As yet this is not legislation and it will need to become law first in both England, Wales and Scotland dependant on devolved powers.
Even then there is nothing to do as the government has decided to use the Deferred Choice Underpin (DCU). The DCU will mean that you do not have to make a formal decision as to how your 2015 to 2022 benefits will be treated until you reach your chosen retirement age. It is envisaged that at that stage you will be provided with calculations showing you the options available and you will then elect for how those benefits should be treated.
For those who have retired recently, or about to retire, any impact of these new rules will be dealt with via a retrospective adjustment.
Importantly, for now, members will be deemed to have accrued benefits in their legacy schemes, rather than the reformed scheme so automatically they will be put back into the legacy scheme. The choice option would therefore be to move to the 2015 scheme.
If I have opted out should I change my mind?
Following changes in the Budget, this topic was covered in our briefing notes from April 2020. Back then we commented that people who have opted out the need to revisit their decision. Our position remains unchanged on that.
The remedy proposals now also give the potential to retrospectively unpick previous decisions, although this would be complicated and there is currently no guidance available on what the options are.
Are there any impacts on tax or pension contribution rates?
If you have been impacted by Annual Allowance tax charges then these will need to be recalculated. For GPs returning to the 1995 scheme, it is likely to reduce charges that may have been paid. Any reduction in tax will be refundable either to the member if they paid the tax themselves or to the pension scheme if they had opted for Scheme Pays. In the latter scenario, this would result in an increase in pension benefits available upon retirement.
It is also possible that, upon recalculation, more tax is due more commonly with consultants or GP’s who have officer scheme membership. In this scenario members will be given the option to use Scheme Pays to cover such additional liabilities.
This will not be a simple exercise and will need NHSBA – the organisation who administers the pension - to reissue pension savings calculations. It is unlikely that these will be available until 2022 or 2023.
In most cases the pension tier percentage rate will not change. The only exception will be for members who were subject to annualisation rules – in the main locums or GPs who moved out of training. Retrospective adjustments to rates may see a refund of contributions for those GPs if they change pension tier.
How long will this take to unravel and what happens after 31 March 2022?
The government has set a target date of 1 October 2023 for retrospective changes to be introduced. It is a significant piece of work for NHSBA.
On 31 March 2022 the legacy schemes will come to an end and going forward all future accrued membership will be in the 2015 or subsequent schemes.
- There is nothing to do now.
- Make sure your pension record is up to date.
- If you have opted out of the scheme revisit your decisions.
Where we can assist
- Opt-out / opt-in decisions
- Assessment of AA tax charges (historic, present or future)
- Recommendations for, and assistance with, Scheme Pays Election (including the use of private pension funds, where applicable)
- Better understanding your NHS pension benefits
- Understanding the impact of role changes (different roles or changing your number of sessions) on your pension benefits
- Forward projections of your NHS pension position to understand your retirement position and options
- Your wider financial planning and its interaction with your NHS pension benefits.
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