28.1
PENSIONS AND THE NHS PENSION SCHEME
Pensions and the NHS Pension Scheme
This chapter begins with an outline of the current scheme and the benefits it provides. The scheme's benefits are substantial, particularly in the event of illness or death in service and, payments are relatively cheap. It is easy to see why non principals have felt unfairly excluded and disadvantaged by not being eligible to join it. Pensions are complicated and it is not within the scope of this book to provide great detail. Readers are advised to use the contact addresses below and to consult independent financial advisers.
The NHS PensionScheme
All GP principals who contract their services to the NHS are eligible to become members of the NHS Pension Scheme. From the 1st September 1997 all practice staff including employed non-principals are able to join the scheme as well. Self employed locums are at present excluded from the scheme although there are efforts afoot to remedy this inequity. For most doctors it is advisable to join the scheme as the benefits achieved are expensive, if attainable, through private pension and health insurance schemes. GPs are required to contribute 6% of NHS superannuable earnings. Such payments are eligible for tax relief. Health authorities contribute an additional 4% of superannuable earnings and the government funds the cost of inflation proofing the pension separately.
The main benefits are
- annual pension on retirement
- a tax free lump sum of three times the annual pension, on retirement (less for married men with service before 1972)
- an enhanced index linked pension if a GP has to retire on grounds of incapacity or ill health*
- an index linked spouse’s pension of 50% of the GP’s pension in the event of the GP’s death either in retirement or whilst still in service*
- an index linked pension for dependants of 25% of the GP's pension for one child or 50% for two or more children*
- a tax free lump sum of twice re-valued career average superannuable earnings in the event of death in service
*must have at least two years in the scheme
Index linked pensions protect against inflation.
The total benefit cannot exceed the equivalent of 40 years reckonable service by age of 60 (or 45 by the age of 65), including the purchase of any additional years.
Normal Retirement Age is 60 but you can stay in the scheme until aged 70 (subject to the 45 years maximum). GPs can retire on a voluntary basis after the age of 50 but their pension entitlement is reduced (often substantially) to take account of reduced contributions and because there is likely to be a longer pay-out time. For a GP, other than an assistant or associate, pensionable earnings are GP income known as practitioner income, less deemed expenses (including assistant’s salary). For assistants and associates pensionable earnings are all salaries and fees and regular payments (excluding overtime).
Service as a Junior Doctor and Clinical Assistant
Service as a junior hospital doctor, and benefits then paid, is usually converted into practitioner service (if it is fewer than ten years) on joining the scheme as a principal. It is advisable to keep all pay slips as a junior doctor as these contain details of the payments that you have made into the scheme and are a back up if any errors occur in your contributions.
Benefits as a clinical assistant are calculated separately from the benefits built up as a GP. The number of part time years are converted into a whole time equivalent and benefits based on the whole time equivalent deemed pensionable earnings divided by 80.
Each year GPs are sent a form SD86c (from the health authority) detailing total NHS pensionable pay as well as the contributions made to the scheme. GPs can request annual details from the NHS Pensions Agency, and it is worth checking the two sources of information agree. Ask the Agency for a ‘Dynamising Sheet’. Otherwise problems that arise may be undetected for years (even until you come to retire and then can be difficult to correct).
Early Retirement
- The annual pension and lump sum will be reduced if you retire early
- Retiring before 55, your pension will not be index linked until you are 55, unless taken on ill health grounds
- One month retirement: If you return to NHS work within one month the pension will be suspended and pension received repaid
- If you return to work after one month the pension may be abated, unless you are over 60 at retirement
- If you have more than one NHS job you will normally have to leave all NHS posts
On joining the scheme after a break it can be worth buying added years or paying additional voluntary contributions. Added years will increase the tax free lump sum and the pension.
28.1
PENSIONS AND THE NHS PENSION SCHEME
Added Years
Buying Added Years can in effect buy additional service by the contribution of an extra percentage of pensionable NHS earnings. The cost of these depends on the term and age at the outset of paying. All benefits of the scheme are enhanced by added years. Payments are tax deductible and can be made up to 60 or 65. The benefits are guaranteed but contributions must be maintained unless there is serious ill health or financial hardship. Added years may not be used to fund early retirement. Added years contain an important insurance element as they are credited in full on ill health retirement or death in service.
Additional Voluntary Contributions (AVCs)
AVCs are payments which run alongside the NHS scheme. AVCs are said to be more flexible because payments can be increased, reduced or stopped. The benefits of AVCs depend on the performance of the investment fund (and the fund managers), and the charges that are made on the fund. They can only be taken as a pension, not as a lump sum, and at the same time as the main benefits. Payments are made monthly, annually or intermittently and are tax deductible. AVCs can be paid into the NHS scheme or to an insurance company which offers so called ‘Free Standing’ AVCs (FSAVCs). Benefits are not guaranteed. FSAVCs are usually significantly more expensive but will pay substantial commission for those selling them. Care needs to be taken.
28.1
PENSIONS AND THE NHS PENSION SCHEME
In June 1997 the Minister of Health, Mr Alan Milburn announced that all practice staff would be eligible to join the NHS Pension scheme from 1st September 1997. This is expected to include employed assistants, retainees and employed locums. Associates were already able to join the scheme, as were approved assistants and so, only self employed locums continue to be excluded and now represent the only health workers in the NHS who cannot join the scheme. There has been some confusion over which assistants could receive superannuation to date. Most health authorities are believed not to be concerned about whether there is an actual contract between a partnership and an assistant. So long as the assistant is paid as an employee, pays national insurance and tax through the practice, the health authority will calculate the assistant's superannuation contributions. The extension of membership of the scheme should cost principals little as health authorities have been told to use funds saved from the cut in national insurance contributions to meet 75% of the costs and have discretion to reimburse principals in full from cash limited funds that were substantially increased (partly for this purpose) in April 1997. By September 1997 a few health authorities had announced that they were not going to fund the additional staff contributions in full.
The National Association of Non-Principals has been trying to establish whether there is a way in which locums could join and therefore reap the benefits that all other doctors and staff in General Practice now enjoy. The BMA is also pursuing this with the government. One problem which has prevented practices taking on formal assistants and instead using ad hoc locum cover (even though the cover may be fairly continuous over several months) is that assistants' superannuation contributions reduce principals' contributions (and so benefits). However at the time of writing there appears to be good prospects that this problem will soon be resolved.
To date, principals have had their cake and been able to eat it. They have been able to delegate clinical work to non-principals and still collect the superannuation contributions for work they have not done themselves. They have of course paid the non-principal their fee - albeit usually one suggested by the BMA. Self employed locums will have to charge an appropriately higher amount for their services if they continue to be excluded from the scheme. Otherwise any doctor who spends any significant period locuming at current suggested BMA rates will fall significantly behind in pension preparation than principal colleagues even though they may have spent similar lengths of time in clinical general practice in the NHS.
Pension Planning
Many non-principals will have spent some time in employed NHS work and have contributed to the NHS pension scheme before becoming self employed. Generally these contributions, albeit relatively small will stay within the scheme and generate a small pension and small lump sum on retirement. In these circumstances non-principals need also to ensure they have life assurance and income protection policies.
Non-principals have the option of transferring NHS contributions to a private personal scheme but it is very unlikely to be sensible to do this. Contributions to private pension schemes can be made monthly, quarterly or as one off annual payments. All such contributions are eligible for tax relief. Contributions are invested and should therefore grow. On retirement, at any age after 50, 25% of the fund can be received as a tax free lump sum. The remaining 75% provides income for the remainder of your days. Some policies offer a payout if the holder suffers permanent, total disability - a poor second to the NHS scheme’s payout on retirement due to ill health.
Money invested in pension plans should be considered as untouchable and doctors who may require access to money before retirement should consider investing in other ways such as Personal Equity Plans, which also produce a tax free lump sum which can be accessed in times of financial difficulties or used to supplement the pension. Contributions to a PEP do not qualify for tax relief.
Further information on private pension planning and PEPs should be sought from independent financial advisers.
For further information
BMA members can request a number of Pensions Guidance Notes from local BMA offices.
28.1
PENSIONS AND THE NHS PENSION SCHEME
BMA Services (Independent Financial Advisers)
Offices around the country, calling 0645 747737 puts you through to your local office.
Making Sense of Pensions and Retirement
by John Lindsay and Norman Ellis £17.50
Radcliffe Medical Press 01235 528820 or any good bookshop
28.1
PENSIONS AND THE NHS PENSION SCHEME
NHS Pension Agency
England and Wales
NHS Pensions Agency
Hesketh House
200-220 Broadway,
Fleetwood
Lancashire
FY7 8LG
01253 774774
Scottish Office Pension Agency
St Margaret's House
151, London Road
Edinburgh
EH8 7TG
0131 244 3585
Northern Ireland
Health and Social Services Superannuation Branch (HRD 6),
Waterside House
75, Duke Street
Londonderry
BT47 1FP
01504 319000
NHS Scheme AVCs
Equitable Life Assurance Society
PO Box 183, Freepost
Aylesbury
HP21 7GP 01296 393100
Medical and Dental Retirement Advisory Service
Hertlands House
Primett Road
Stevenage
Herts
SG1 3EE
01483 742727
Pensions Ombudsman
11 Belgrave Road
London
SW1V 1RB
0171 834 9144
BMA Superannuation Department
BMA House
Tavistock Square
London
WC1H 9JP
0171 383 6166