NHS Pension Scheme Proposal to increase contributions - ADDITIONAL Q&A

How can I find out how these proposals will affect me?
Use the calculator at www.dh.gov.uk/en/Consultations/Liveconsultations/DH_128710
to find out how the proposals affect the level of contributions you pay. The consultation document also sets out a range of examples to illustrate how much pension a scheme member would earn for a single year's contribution. For instance, after tax relief a person working full time, earning £25,000 per year would pay £1,425 in contributions per year. If the person retired at 60 with a final salary of £25,000, the contributions and membership for that year alone would result in £313 per annum of pension and £938 of lump sum (assuming membership of the 1995 section of the scheme).
By way of comparison, in order to buy £313 of pension on the open market and to take a similar lump sum, linked to inflation and with a survivor pension for their spouse, the member would need a pension pot of around £10,000 at retirement.
If the scheme member had been working for 20 years full time, then the annual pension that they would have earned up to date would be 20 times £313 (£6,260) and the lump sum 20 times £938 (£18,780). Of course in a final salary pension scheme the actual benefit received is based on final salary at retirement, which would usually be higher.
Why are contribution rates for part-time employees based on a full time salary rather than their gross income?
Employees who work part-time have their contributions based on their full time equivalent (FTE) salary. Their pension is based on their final full time equivalent salary rather than their final part-time earnings. This gives staff members a higher pension, albeit accrued at a slower accrual rate because their length of service will be based on their part-time working pattern. This approach was agreed with the NHS Trade Unions as the best way forward.

What do these proposals mean for employees with ‘special class’ status?
Like all scheme members, employees who have ‘special class’ status for pension purposes (for example, some nurses, health visitors or mental health officers), will continue to build pension entitlements at existing accrual rates and normal retirement ages. It is only the employee contribution rates that would change. The proposed increase would apply to all scheme members, including those with special class status.

I’m purchasing Added Pension. What do the proposals mean for me?
These proposals do not change the terms of your Added Pension purchase. The rates for Added Pension are reviewed regularly and were last changed in 2010 following the announcement that CPI would be used for indexation of public service pensions.

I’m purchasing Added Years. How are these affected?
The proposed increase to employee contributions do not change the terms of any Added Years that members are purchasing. This is because these are subject to separate contractual arrangements.
What about NHS money purchase AVCs with external providers? Do these proposals have any impact?
Additional Voluntary Contributions (AVCs) are governed by separate contractual arrangements and are unaffected by these proposals.

I can’t afford to pay more – can I opt out of the pension scheme?
You don’t have to stay in the scheme but you should think very carefully, and make sure you have the full facts, before opting out. If you leave the scheme you will lose the current NHS employer contribution to your pension - effectively a 14% ‘pay cut’, and your pension will be based on your salary when you leave the scheme. Members who opt out also have to pay a higher rate of national insurance - this means that your take home pay doesn’t increase on opting out by as much as you may anticipate. You will also give up the death-in-service benefits, so you may need to review your life insurance.
If you have been in the scheme less than 2 years, your contributions will be refunded - less amounts for the tax and national insurance that you saved as a NHS Pension Scheme member. If you have been in the scheme for two years or more, your benefits will be preserved for payment at your Normal Pension Age. The benefits are uprated by the Consumer Price Index, but are based only on your final pensionable pay and service when you leave the scheme.

Will the level of employer contribution change?
Under these proposals the employer contribution would remain the same – 14%. However, the Government is committed to introducing long-term reforms of public service pension arrangements that would take effect from 2015 onwards. The level of employer contribution may therefore be subject to change in the future.

Why isn’t the increase the same in all public service pension schemes? It’s not fair that civil servants pay less, why don’t you just ensure all workers pay the same level of contributions?
All public servants are living longer in retirement, and the cost of this in recent decades has mainly been met by taxpayers in all schemes. Asking each scheme to deliver the same percentage point increase in contributions is the fairest way to apportion savings across schemes and will help limit the number of people who opt out of their pension scheme.

Comparing contribution rates across schemes cannot be done in isolation. Pensions are just one aspect of wider remuneration packages which of course vary between different sectors. For example, the average salary of a civil servant is around £23,000 a year, for a nurse it is around £31,000 and for a secondary school teacher £36,000. The majority of civil servants also do not generally receive progression pay, but other workforces do. Under Agenda for Change, nurses typically receive a 4% progression pay award and a classroom teacher typically receives an 8% progression pay award.

It seems that dentists will suffer disproportionately under these proposals compared to lower paid staff?
Dentists will not suffer disproportionately. It is true that higher earners are being asked to pay more than their lower earning colleagues and doctors and dentists are amongst the highest earners in the NHS. Higher earners generally get significantly more pension in relation to their contributions compared with lower paid staff. They also benefit most from the tax relief available on pension contributions as higher earners get relief at the rate of 40 or even 50%. All high earners would be treated in exactly the same way, including other professionals and senior managers - so doctors & dentists would be treated no differently.