Riding the NHS waiver?

Under a specific circumstance in the NHS pension scheme, enhanced protection could have been preserved even if Relevant Benefit Accrual (RBA) limits were exceeded.

Enhanced protection & waiver of pension rights
Retiring NHS pension scheme members may find it useful to be aware of the following information where the member has not been provided with up-to-date scheme information or is relying on information contained in an out-of-date pension scheme booklet.

From A-Day, some NHS pension scheme literature contained information detailing how a member could retain enhanced protection, even if they had exceeded RBA limits when crystallising their scheme benefits. This presented a valuable option for NHS staff that may have received salary increases late in their career as a result of new NHS contracts, or rewards for clinical excellence and whose pension benefits greatly as a result.

The ability to retain enhanced protection was made possible following the Finance Act 2004, and the subsequent introduction of the simplified pension regime in April 2006 because an amendment was made to NHS pension scheme regulation T2(a).

It allowed for members of the NHS pension scheme to waive their right to any part of their pension and lump sum benefits in excess of RBA at crystallisation to maintain a previous enhanced protection nomination. This could then be used in conjunction with further pension benefits that crystallised after the NHS pension scheme benefits, to avoid a subsequent lifetime allowance charge. The decision to waive benefits was final, and contributions made in respect of those benefits could not be reclaimed.

The amendment to the NHS pension scheme regulations was subject to a legal challenge by the Department of Work & Pension (DWP) sometime after it was made. After negotiations between the DWP, Department of Health and the HMRC, it was agreed the option to allow members to waive benefits would be withdrawn. However, scheme members who utilised the ‘waiver option’ between 6th April 2006 and 13th December 2007 retained their entitlement to enhanced protection.

Pension schemes will continue to look for ways to assist members with the implications of losing enhanced protection as a result of RBA. For example, we understand that the Police pension scheme allows members to split benefit crystallisation events to maintain enhanced protection as long as possible, maximise use of RBA rules, and minimise tax charges.

This issue highlights not only the need to obtain up to date information about your pension schemes and benefits, but also may be of interest to those retired, high-earning NHS staff who may have utilised this option at the time it was available.