The introduction of the new NHS Pension 2015 has got everyone talking and will affect broadly 75% of NHS employees. As it is commencing in April 2015, you have no doubt read all the “official” facts and stats.
There are some less well known effects that are worth knowing to ensure you don’t get caught out.
The 2015 NHS Pension – are you a member?
Depending on when you qualified as a doctor or dentist, you may have been given the option under NHS Pension Choice 2 to switch your pension from the 1995 pension to the 2008 pension scheme.
For everyone else and new NHS employees, the 2015 scheme now applies.
The main difference with the NHS Pension 2015 is that is is now linked to the State Retirement Age (SRA) set by the government, currently 65.
However, there are also, other, less well publicised facts that could affect you depending on your circumstances.
5 things to take into account
1) Transfers out of your NHS Pension
From 6 April 2015, it is no longer possible to transfer your NHS pension to a personal pension, such as a “defined contributions pension”.
This could particularly affect retirees planning to relocate and retire overseas, either a new destination or perhaps if you are planning to return home to your country of birth.
2) Loss of certain protection covers
There is currently a lifetime pension allowance (LTA) of £1,250,000 (reducing to £1,000,000 from April 2016 following the 2015 Budget announcements). This is the maximum a pension holder can draw from a fund without tax implications.
Enhanced Protection, Fixed Protection 2012 and Fixed Protection 2014 are covers that have been made available by the Government to offer protection to pension holders at the time legislation changed, where they had already exceeded the new LTA limit.
As the 2015 NHS pension scheme is being viewed as a completely new pension scheme, rather than a revision of a previous one, these protection covers will be lost upon joining or moving to the 2015 scheme.
This is likely to most affect those approaching retirement in the next 10 years, but there are exceptions depending on your circumstances.
3) NHS Pension 2015 is now based on pensionable income
Rather than your pension being based on a final salary, the 2015 NHS pension scheme is based on your monthly earnings.
A key point to note though is that deducted from your monthly earnings are any “salary sacrifice” schemes you have running, such as vouchers for childcare, car leasing etc. This reduces your income each month and therefore reduces your “pensionable earnings”.
This affects most, those NHS employees taking advantage of tax saving benefits on a monthly basis.
4) Want to retire before age 65 (SRA)?
The “Early Retirement Reduction Buy Out” (ERRBO) has been introduced for the NHS Pension 2015.
It will be possible to draw from the pension fund at age 65 but any sooner will be subject to penalties or “buy out” charges, yet to be determined.
5) Your pension contributions are based on estimates (GP’s)
GP’s, the contribution to your pension is based on the estimated superannuated income you or your practice provides to your local area health team.
As income often fluctuates for GP’s, these estimates may be difficult, and may even get understated. In this situation, pension contributions may be less than required for the retirement package you desire and a “top up” may be required at a later date, which may or may not be convenient or affordable.
This affects most those with changeable income.
Contributing to a personal pension plan
Many doctors and dentists opt to contribute to a personal pension alongside their NHS pension. With the changes to Defined Contributions Pensions it is now possible to draw benefits from age 55 and under much more flexible terms.
It isn’t to suggest the NHS pension is not worthy, as it is guaranteed and index linked.
However, it is worth considering all your options when it comes to retirement planning.
Dental & Medical Financial Services help hundred of doctors and dentists every year with retirement planning, including working out the optimum package from NHS and private pension contributions. Call Darren today for a friendly chat.
Tel: 01403 780 770