Changes to the NHS Pension Scheme

Introduction

The NHS Pension Scheme is complex at the best of times. It’s also always subject to change – which can make it even more difficult to understand your rights, obligations and benefits.

A number of key NHS Pension Scheme changes were introduced in 2023, largely to aid staff retention. You’ll find a summary of the main changes below.

2023 NHS Pension Scheme changes

A number of factors in recent years has led to a significant number of doctors leaving the NHS. Many were being hit with annual allowance or lifetime allowance charges, due in part to the impact of inflation on pension pots.

Others were limited in how they could access their pensions without incurring a charge.

In 2023, a number of retirement flexibilities (particularly for members of the 1995 section of the scheme) were therefore introduced. These give greater leeway on how doctors take their pension benefits, helping members access their pension while continuing to work in the NHS.

The key changes were:

Opening up partial retirement to all sections of the scheme

Since 1st October 2023, all members of the NHS scheme now have access to partial retirement, regardless of which section of the scheme you’ve built your benefits.

Partial (or phased) retirement means being able to draw all or part of your pension while continuing to work. To find out more, read our guide to flexi-retirement.

Enabling pensionable re-employment

From 1 April 2023, employees who have taken their pension from the 1995 section and return to work are now able to re-join the NHS pension scheme and build further pension benefits in the 2015 scheme.

Removing the 16-hour rule

Previously, members of the 1995 Section were only allowed to work 16 hours a week in the first month after retirement, otherwise their pension payments would be affected.

The lifting of this rule means members can now draw their pension, return to work and work as many hours as they like, provided they have had a ‘retirement’ of at least 24 hours.

CPI changes

As the NHS Pension Scheme is linked to the Consumer Price Index (CPI), high inflation in recent years has impacted the growth rate of many members’ pensions, leading many into tax charges.

Changes in 2023 were therefore made to the career average (CARE) scheme (2015 and 95&08 practitioner) scheme revaluation date, moving it from 1 April to 6 April each year. This means the same CPI is used to revalue the schemes as is used to calculate the AA.

Changes to pension annual allowance and lifetime allowance

In April 2023, changes were also made to both the annual and lifetime allowances affecting UK pensions. Announced by the Chancellor of the Exchequer in the 2023 spring budget, the changes are as follows:

• The annual allowance was increased from £40,000 to £60,000, effective from the 2023/24 tax year
• The lifetime allowance will be abolished, effective from April 2024

These allowances determined how much you could contribute to your pension and receive tax relief on, over the course of a year and throughout your lifetime.

The scrapping of the lifetime allowance means there’s now no limit to the amount you can  accrue in your pension throughout your working life without being penalised. This is on the condition you don’t exceed £60,000 annually.

The McCloud judgement (transitional protection remedy)

The McCloud judgement of 2018 was another significant recent change to the NHS pension scheme. The ruling found that protections introduced in 2015 discriminated against younger members of public sector pension schemes, including the NHS scheme.

The judgement affected:

• NHS scheme members in service before 31st March 2012 and on or after 1st April 201
• Those who’d taken their pension benefits and retired since 1st April 2015
• Deferred members returning within five years

Affected members of the NHS Pension Scheme who had any service built up in the 2015 scheme between 1 April 2015 and 31 March 2022 were moved back to their legacy (95/08) schemes.

Any members still active on 1 April 2022 were then moved in to the 2015 scheme, which is a career average (CARE) scheme.

What’s the impact of McCloud?

When pensions become payable, affected members will be asked which section of the scheme they wish to take benefits from for the ‘remedy period’ between 2015 and 2022.

This is known as a deferred choice underpin (DCU) and allows NHS Pension Scheme members to make their choice based on their career and a known retirement date.

There are thousands of NHSPS members affected, so the scheme is taking a phased approach to contacting everyone who qualifies, starting from April 2024.

For most NHS scheme members, there is nothing to do until your options are presented to you.

What to consider when making your choice

When it comes to making your McCloud decision there will be numerous factors to think about – not just which pot is higher. Your choice may depend on whether you want a standard pension, or to claim a lump sum. The rules about dependents may also vary.

For the vast majority of people who qualify, the McCloud judgement should leave you better off - though the amounts of money involved may not be life changing.

Still, when the time comes to make a decision about which scheme to choose, it would be wise to  speak to your Specialist Financial Adviser from Wesleyan Financial Services to make sure you are choosing the best option for your circumstances.