What dentists need to know about the NHS pension scheme

Introduction

Understanding the NHS pension scheme, which section(s) of the scheme you are in and the benefits you’re entitled to, can be confusing for many. Once you add changes the government has recently announced to all public sector pensions, it can feel even more difficult to grasp.

But it’s important to understand what you’ll be receiving and when so that you can make well-informed financial decisions throughout your career and plan your retirement well.

To provide more clarity, I’ve answered some of the common questions we get asked by dentists about their NHS pension scheme, such as:

• How do I know which part of the NHS pension scheme I’m in?
• What are the differences between the scheme benefits?
• What are the other financial benefits of the NHS pension?
• What happens to my NHS pension if I move to private dentistry?
• Am I affected by changes the government has recently announced to all public sector pensions?

How do I know which NHS pension scheme I’m in?

The answer to this is based on when you joined the scheme.

If you joined on or after 1 April 2015, you are in the 2015 (reformed) scheme. Before that and you will have all, or some, of your benefits in the ‘old’ scheme.

If you are in the old (legacy) scheme, there are two different sections within this. This again depends on when you joined – either before or after 2008.

As part of the pension discrimination case and the Government’s ‘Deferred Choice Underpin’ response, you will be moved back into your legacy scheme and your Annual Allowance will be reassessed, which may mean a reduction in your Pension Inputs. You may receive a refund or be able to have your Scheme Pays corrected.

These changes will take effect from April 2022 but schemes have until October 2023 to put them in place. All changes will be backdated to April 2022. Anyone planning on retiring during this period could find themselves impacted by this and should seek financial advice.

What are the differences between the scheme benefits?

The following applies for dental practitioners. If you are in a salaried position, it’s worth seeking retirement income planning advice from a Specialist Financial Adviser from Wesleyan Financial Services.

All of the schemes are known as Career Average Revalued Earnings scheme (CARE).

For the old scheme, each years’ earning is added together into a pot and revalued annually by 1.5% plus CPI to protect it from inflation. At normal retirement, members receive a percentage of that pot as a pension and potentially a percentage as a lump sum.

There are a few differences within the old scheme.

If you joined before April 2008, you are usually in the 1995 section, where the CARE arrangement is:

• Pension of 1.4% of total up-rated pensionable earnings throughout career
• Pension commencement lump sum of 3x pension
• Normal pension age of 60

If you joined after April 2008, you will usually be in the 2008 section, where the CARE arrangement is:

• Pension of 1.87% of total up-rated pensionable earnings throughout career
• No automatic lump sum
• Normal pension age of 65

In the 2015 scheme, one 54th of your earnings is added to the pot each year and revalued annually to protect it from inflation. At normal retirement members receive that pot as a pension.

If you’re in the new scheme, known as the 2015 section, the CARE arrangement is:

• 1/54 x CARE for each full year of service, revalued by CPI plus 1.5% every year
• No automatic lump sum, but you are able to give up your pension for one
• Normal pension age of state pension age or 65 if higher.

There are reduction factors for retiring early in both the old and new schemes and there are late retirement enhancements for the 2008 section and 2015 scheme.

What are the other financial benefits of the NHS pension?

There are a range of benefits beyond just the pension that you can access by being in the NHS scheme. These include:

• Ill health retirement pension – if you were unable to practice due to illness, you could be eligible for early payment of your pension benefits. The level of benefits you receive depends on the severity of your illness or disability. This is not guaranteed and is decided by a board.
• Death in service benefit – if you die before you retire, your beneficiaries will receive a payout. If you’re in the 2015 scheme this is most likely a lump sum amounting to twice your pensionable income. In the older schemes, it’s based on an average of your earnings.
• NHS sick pay – while not a benefit of the pension itself, all practitioners completing NHS work, regardless of which scheme you’re in, are eligible for NHS sick pay at 100% of your pensionable income between the fifth and 26th weeks of absence (25% of pensionable income in Scotland and Northern Ireland). There are some caveats to this and if you’re in the early stages of your career or working as a limited company, it’s wise to seek advice about this.

What happens to my NHS pension if I move to private dentistry?

Even if you’re no longer completing NHS work then your pension pot continues to grow with inflation, albeit at a lower rate than if you were still an active member of the scheme.

This means it can still have a significant impact on your final pension even if you’re no longer working in the NHS. How big an impact it has depends on the age you make the move to private.

For example, if you’re over the age of 45, it’s quite common that when you take into account the NHS benefits you’ve already accrued and look ahead to your chosen age of retirement, it will still project a significant level of income when you retire.

It’s worth mentioning that when making any decisions you need to consider the value of the NHS pension you’d be giving up as well as the potential cost of replacing extra benefits, such as death in service, etc.

A Specialist Financial Adviser can help you to analyse your pension funds and make projections to retirement to find out where you stand.

Am I affected by the NHS pension discrimination case?

Changes to the NHS pension scheme will be instigated as the transitional rules linked to the introduction of the 2015 scheme have been found to be discriminatory in a ruling known as the McCloud Judgement.

It affects you if you were in service before 31st March 2012 and continued in service between 1st April 2015 and 31st March 2022, or earlier if you retire. It also applies if you were in service on 31st March 2012 and left, but returned within five years.

The Government recently decided to use the Deferred Choice Underpin approach to deliver this reform. This means that you’ll decide which pension benefits you want to receive between the legacy scheme, which is the 1995 or 2008 sections, or the 2015 scheme when you retire, rather than having to decide within 12 to 24 months after 31st March 2022.

Having greater insight into the details of your NHS pension can help you make well-informed decisions about both your personal and professional life and smooth the transition into retirement. If you’d like to gain better understanding of your pension, you can  book a financial review with a Specialist Financial Adviser from Wesleyan Financial Services.