GP pensions have come under fire of late, from the major changes that took place in 2015 to more recent changes to the tapered annual allowance.
But complexity and controversy aside, the NHS pension scheme is still a significant benefit for those who dedicate their working life to helping others through the health service.
The scheme guarantees you a yearly income for the rest of your life, and you can also nominate that a lump sum is paid to your spouse, child, or an adult dependant in the event of your death.
It’s never too early to start pension planning, and finding out what you’re entitled to is the first step to securing a comfortable retirement.
GPs and the NHS pension scheme
The NHS pension scheme is available to GPs who are party to, or working under, a general medical services (GMS) contract, a personal medical services (PMS) contract, or an alternative provider of medical services (APMS) contract.
You can also qualify if you’re only working for an out-of-hours provider that is an NHS pension scheme employing authority.
GPs are categorized into three types under the scheme:
- Type 1 medical practitioners are providers like single-handed GPs, partners or shareholders, who are party to a GMS, PMS or APMS contract.
- Type 2 medical practitioners include surgery-based GPs who are salaried or have a long-term fee, and GPs who solely work out-of-hours.
- Locum practitioners are freelance GPs who temporarily take the place of another GP.
Your pensionable income and how you earn it will depend on which of these types you fall under.
Which scheme applies to you?
There are three parts to the NHS pension scheme: the 1995 section, the 2008 section, and the 2015 scheme.
All three of these are defined benefit pensions, in which the amount you get is based on your salary and how long you’ve been on the scheme.
The 1995 and 2008 sections both pay a final salary pension, so the amount you get is based on your salary before you retire. The 2015 scheme, meanwhile, pays based on your career average earnings.
Most GPs are ‘transition members’, meaning they joined one of the earlier schemes but were switched over to the 2015 one. This might mean you have a mixture of two schemes.
Whether you were fully or partially moved to the 2015 scheme will depend on your age and how close you were to being able to take out your pension benefits.
This transitional protection has recently come under scrutiny for age discrimination, as it gave older scheme members the option to access benefits that were not offered to younger members.
As a result, the Government is now planning to allow scheme members to choose what kind of pension to take for the period between 1 April 2015 and 31 March 2022.
Calculating your pension income
To work out how much your pension will pay out each year, there are different calculations depending on the section or scheme that applies.
The 1995 section
Under the 1995 scheme, your pension is 1/80 of the best of the last three years’ pensionable pay for each year you were a member of the scheme.
You can take this at age 60.
The calculation is:
Your pensionable pay x days of pensionable membership x (1/80 x 1/365).
The 2008 section
This scheme works slightly differently, as it’s based on your ‘reckonable’ pay. This is the average of the best three consecutive years of pensionable pay you received during the last 10 years of your career in the NHS.
Your pension is 1/60th of your reckonable pay for each year of membership in the scheme, and you can take it from age 65.
So the calculation for this section is:
Your reckonable pay x days of pensionable membership x (1/60 x 1/365).
The 2015 scheme
Unlike the first two sections, the 2015 NHS pension is a ‘career average revalued earnings’ scheme.
This means the amount you get will be based on pensionable pay throughout your career in the NHS, using two calculations: a build-up rate and revaluation.
The build-up rate, which stands at 1/54 for this scheme, is a fraction of your pensionable earnings.
This figure is then revalued using a rate set by the Treasury, plus 1.5%.
You can access this at your state pension age, or at 65 if your state pension age is lower.
What happens if you retire early?
A survey by the British Medical Association (BMA) recently found that 32% of GPs are planning an early retirement, largely due to the stress of COVID-19 and high workloads.
If you’re among those people, you’ll need to carefully weigh up the advantages and disadvantages of cashing out your pension early, as it will generally mean you have reduced benefits.
Depending on the section or scheme you’re in, and when you joined it, you might be able to access your benefits from age 50 or 55. You can find more information about this here.
What if you leave to work elsewhere?
The same survey showed 21% of people are thinking of leaving the NHS for another career.
Whether you’re switching career paths altogether or thinking of setting up your own private practice, this is also something to consider from a pension planning point of view.
Once you leave the NHS pension scheme, you might be able to transfer your pension rights to a new provider, but various restrictions apply – and it’s essential that you get expert advice before doing this, so you don’t risk losing out on valuable pension benefits.
If you leave and rejoin at some point, the amount you qualify for might depend on how long you’ve been out of the scheme.
And if you have a 1995 or 2008 pension, it’s important to remember your income will be based on what your salary was in the years before you left the NHS.
That means if you’re planning to go private but continue on reduced hours in an NHS role, you might not be entitled to as much income as you otherwise would have been.
Have you triggered the tapered annual allowance?
Finally, an ongoing controversy for NHS pensions is that of the tapered annual allowance – a gradual reduction in the amount of tax-free annual pension allowance you have if you’re a high earner.
This is a rule that applies to anyone earning over certain income thresholds, but it’s particularly problematic for those in the NHS pension scheme as they have very little control over their pension growth.
We can help you to understand the rules for the taper and find out whether it affects you.
Get in touch for specialist advice on GP pension planning.