NHS Pension Scheme

The value of membership

The full ten-point agenda

1. An overview
2. How much does the scheme cost
3. How your pension builds up
4. Keeping track of your pension
5. Protection benefits
6. Leaving the scheme
7. Retiring from the scheme
8. Saving enough to stop work
9. Ways to increase your benefits
10. Pensions tax
1. An overview
A benefit scheme for employers,
members and their dependants

Income tax Your

Cost is shared You pay in payers get employer
tax relief pays in too

Payable on healthy retirement …or in ill-health

Benefits for you
Pension payable for life Tax-free cash

Life cover when in service

Protection for
others
Benefits for adult dependants …and children
2. How much does the scheme cost?
Your payslip
 Costs are shared between members
and employers – “FULL TIMERS”

Whole-Time
Employer
Tier Equivalent Member rate
rate
Pensionable Pay
1 £0 to £15,431 5.0%
2 £15,432 to £21,477 5.6%
3 £21,478 to £26,823 7.1%
14.3%
4 £26,824 to £47,845 9.3%
+ 0.08% admin
5 £47,846 to £70,630 12.5% levy

6 £70,631 to £111,376 13.5%

7 £111,377 and over 14.5%
 Costs are shared between members
and employers – “PART TIMERS”

E.g. pay of someone Their “Whole-Time

Employer
working 50% of full Equivalent Member rate
rate
time hours: Pensionable Pay”
£0 up to £7,716 £0 to £15,431 5.0%
£7,716 up to £10,739 £15,432 to £21,477 5.6%
£10,739 up to £13,412 £21,478 to £26,823 7.1%
14.3%
£13,412 up to £23,923 £26,824 to £47,845 9.3%
+ 0.08%
£23,923 up to £35,315 £47,846 to £70,630 12.5% admin levy

£35,316 up to £55,688 £70,631 to £111,376 13.5%

£55,689 and over £111,377 and over 14.5%

 The taxman helps you save too
(2017/18)

Income tax bands – for all England & Wales (not just NHS
staff!)

0% 20% 40% 45%

£0 £20,000 £40,000 £60,000 £80,000 £100,000 £120,000 £140,000 £160,000 £180,000

e.g. £40,000 gross

pay
20% tax
No tax
 The taxman helps you save too
(2017/18)

Income tax bands – for all England & Wales (not just NHS
staff!)

0% 20% 40% 45%

£0 £20,000 £40,000 £60,000 £80,000 £100,000 £120,000 £140,000 £160,000 £180,000

e.g. £80,000 gross pay

20% tax

40% tax
No tax
 The taxman helps you save too
(2017/18)

Income tax bands – for all England & Wales (not just NHS
staff!)

0% 20% 40% 45%

£0 £20,000 £40,000 £60,000 £80,000 £100,000 £120,000 £140,000 £160,000 £180,000

How tax relief works (for every £1 you pay into the scheme)
Yearly Yearly income* Yearly income*
income* Yearly income*
under £11,500pa to over
£45,000pa to £150,000pa
£11,500pa £45,000pa £150,000pa
Tax relief
£0 Tax relief 20p Tax relief 40p Tax relief 45p
You pay You pay 80p You pay 60p You pay 55p
£1

By paying into the scheme, you pay less tax

*(2017/18)
 Example pay slip
Annual pay of £20,000 (2017/18)
Monthly pay Not in In the
slip scheme scheme Your total pension
contribution is £94
Gross pay £1,667 £1,667
Pension (5.6%) - (£94) But you’ve paid
Income tax (£142) (£123) £19 less tax

National And your

(£118) (£118)
Insurance employer
Take-home pay £1,407 £1,332 paid in £238

Over the Over the Giving you If you receive this for
year, year, a gross around 3 years,
you will your pension in you’ve made your
give up… employer will the 2015 money back!
pay… Scheme of..
£900 in £370 paid
£2,860 towards
Take-home every
your retirement
pay year for life
 Example pay slip
Annual pay of £25,000 (2017/18)
Monthly pay Not in In the
Your total pension
slip scheme scheme contribution is £148
Gross pay £2,083 £2,083
Pension (7.1%) - (£148) But you’ve paid
£30 less tax
Income tax (£225) (£195)
National And your
(£168) (£168) employer
Insurance
paid in £298
Take-home pay £1,690 £1,572
Over the Giving you a If you receive this for
Over the around 4 years,
year, year, gross
you will pension in you’ve made your
your
give employer the 2015 money back!
up… Scheme of..
will pay…
£1,420 in £463 paid
£3,575 towards
take-home every
your retirement
pay year for life
 Example pay slip
Annual pay of £40,000 (2017/18)
Monthly pay Not in In the
Your total pension
slip scheme scheme
contribution is £310
Gross pay £3,333 £3,333
Pension (9.3%) - (£310) But you’ve paid
£62 less tax
Income tax (£475) (£413)
National And your employer
(£318) (£318) paid in £477
Insurance
Take-home pay £2,540 £2,292
Giving you a
If you receive this for
Over the Over the year, gross around 5 years,
year, your employer pension in you’ve made your
you will will pay… the 2015 money back!
give up… Scheme of..
£2,976 in £740 paid
£5,720 towards
take-home every
your retirement
pay year for life
3. How your pension builds up
Guaranteed income in retirement
based on your pay

‘Old’ ‘New’
scheme NHS scheme
Pension
Schemes
Final Career
Salary Average
 Career Average pensions

Your pension builds up in slices, using your pay in every year

Total pension at the end
After year 1 After year 2 After year 3 of
your career

Uses pay Uses pay Uses pay Uses ‘average’ pay

in year 1 in year 2 in year 3 across whole career

At retirement your pension is paid every year, for life

Pension paid Pension paid Pension paid Pension paid Pension paid Pension paid Pension paid
in year 1 in year 2 in year 3 in year 4 in year 5 in year 6 in year 7 & on…
 Final Salary pensions

Your pension builds up in slices, using your pay near the end
of each year
Total pension at the
After year 1 After year 2 After year 3 end of your career

Uses Final Uses Final Uses Final

Salary at end of Salary at end of Salary at end of Uses Final Salary at
year 1 year 2 year 3 retirement (or earlier
leaving)

At retirement your pension is paid every year, for life

Pension paid Pension paid Pension paid Pension paid Pension paid Pension paid Pension paid
in year 1 in year 2 in year 3 in year 4 in year 5 in year 6 in year 7 & on…
How much pension builds up?
1995 Section (Example using pay of £20,000 pa)
Benefits built
Benefit Benefits built
1995 Section up in 20
structure up in 1 year
years
Best of last
Pay used
3 years’ pay

Pension 1/80th or 1.25% of pay = 1.25% x 20 x pay =

as proportion of pay 1.25% £250 per year £5,000 per year

One off lump £15,000 lump

sum at 3 × pension £750 lump sum
sum
retirement
But can give up some (more) pension
for cash
Normal Pension
60
Age

Pension amount does not depend on any investment

performance
How much pension builds up?
2008 Section (Example using pay of £20,000 pa)
Benefits built
Benefit Benefits built
2008 Section up in 20
structure up in 1 year
years
Best 3 year
Pay used average from
last 10
Pension 1/60th or 1.67% of pay = 1.67% x 20 x pay =
as proportion of pay 1.67% £334 per year £6,680 per year

One off lump

Nil Nil Nil
sum at
retirement
But can give up some pension for cash

Normal Pension
65
Age

Pension amount does not depend on any investment

performance
How much pension builds up?
2015 Section (Example using pay of £20,000 pa)
Benefits built
Benefit Benefits built
2015 Section up in 20
structure up in 1 year
years
Pensionable
Pay used pay over
career
Pension 1/54th or 1.85% of pay = 1.85% x 20 x pay =
as proportion of pay 1.85% £370 per year £7,400 per year

One off lump

Nil Nil Nil
sum at
retirement
But can give up some pension for cash

Normal Pension State Pension

Age Age (65+)

Pension amount does not depend on any investment

performance
4. Keeping track of your pension
How do you know what you’ve got?
www.totalrewardstatements.nhs.uk

Your pension
payable from
Normal Pension
Age

Total reward,
A guide to how much your pension including employer
would cost to buy from an insurance pension
company contributions
5. Family benefits
 Benefits for dependants

Family benefits in the NHS Pension Scheme

Leave Retire

In active service In deferment In retirement

Payable to spouse/partner for the rest of their life

And dependent children (generally until age
Pension 23)
Increased pension if member dies in active service

Life Most significant lump sum is paid when death is in active

assurance service
lump sum Broadly this is 2 times yearly pensionable pay
6. Leaving the scheme
Leaving the scheme

Join the 2 years Retirement

scheme service age

Leave with Leave with

less than more than
2 years’ service 2 years’
service

Payable
Receive a refund Your
from
of YOUR pension Inflation retirement
contributions stays in the protection age
(less tax) scheme
7. Retiring from the scheme
 Drawing your pension

1995 Section 2008 Section 2015 Scheme

Normal State Pension

Pensio
n
60 65 Age
Between 65 & 68
Age
Your pension starts at a lower amount as paid earlier and for
Retiring longer
early From 55
(not VR) (or 50 if joined From 55 From 55
before 06/04/2006)
Maximum 45 Maximum 45 No maximum
Retiring years’ service years’ service service
late No increase Pension Pension
(max age
75) for retiring increased for increased for
late retiring late retiring late
 Choosing benefits at retirement
Example – 2015 Scheme

…OR give up some

pension
Take a full pension for tax-free cash
(£12 cash for £1 pa pension)

Maximum tax-free
E.g. full pension of £10,000 per year cash of £42,800… …and a pension of
for life £6,400 paid per year for life

You don’t have to take the maximum tax-free

cash
 Flexible retirement

Step down Wind down Draw down Retire & return

Continue Continue Leave

Remain in
working in the working in the employment and
current post
NHS NHS claim pension

Step down to a Work fewer Partially draw Take a short

different role hours down benefits break

Protected pay 1995 members

No impact on Can build up
for 1995/2008 can’t build up
past pensions more pension
pensions more pension

1995
Section ✓ ✓ ✕ ✓
2008
Section ✓ ✓ ✓ ✓
2015
Scheme ✓ ✓ ✓ ✓
 Ill-health retirement
(with at least 2 years’ service)

Permanently ill Pension paid

and unable to do “Tier 1” benefits without reduction
current job for early payment

Pension (calculated
Permanently ill with extra service)
and unable to do “Tier 2” benefits paid without
any job reduction for early
payment

Benefits paid in a
Terminally ill
single lump sum
8. Saving enough to stop work
Your total retirement income
might be made up of…
Other pensions

State pension

Other
savings

NHS pension
How much is enough money
to stop work?
% income replacement
50% to 75% = pension ÷ pay
Lots of
of pay?
research

To pay for the basics…

…the lower your pay, the

higher the % needed
Think it
But what is
through with
right for you? …the higher your pay, the
your partner
lower the % needed
 How much is enough
‘Rough rule of thumb’
Target income = £15,000 + (Pay over £15,000) ÷ 3

Pay £25,000 pa
Total retirement income (per year)

Target £18,300 pa

Pay £50,000
Target £26,700 pa

Pay £75,000
Target £35,000 pa

Total income before retirement (per year)

But if you want to keep the same
income – Pay of £25,000
Total
Over a year Pay in work retirement
income target
83%
Gross amount £25,000 £20,700

Pension (7.1%) (£1,775) Nil

Income tax (£2,345) (£1,840)

National Insurance (£2,020) Nil

100
What you actually %
£18,860 £18,860
Remember – your totalreceive
retirement income could be made up from
the State Pension, NHS Pension and other saving sources.
But if you want to keep the same
income – Pay of £40,000
Total
Over a year Pay in work retirement
income target
Gross amount £40,000 £31,505 79%

Pension (9.3%) (£3,720) Nil

Income tax (£4,956) (£4,001)

National Insurance (£3,820) Nil

100
What you actually %
£27,504 £27,504
Remember – your totalreceive
retirement income could be made up from
the State Pension, NHS Pension and other saving sources.
How much is enough?
a detailed approach
Spending might go down Spending might go up

No mortgage More holidays

Children finally
More leisure time
left home

Don’t have to save

Heating bills
for retirement

No National
Long term care
Insurance to pay

Think it through with your partner

State Pension
When you might get it?
 Will the State Pension
be worth waiting for?

Weekly Amount Average amount

Date Age (2017 prices) Average years in paid over lifetime
payment

1909 70 £20
9 years
8 years
£8,000

1948 W: 60 £36,000
19.5 years
£45 13 years
M: 65

2020 66 £160 23 years

21 years
£182,000

2040 68+ £160+ 24 years

22 years
£182,000+
But will be lower if
you’ve been in the NHS 60 70 80 90
Pension Scheme for
several years
Request a State Pension Statement

Go to: www.gov.uk/check-state-pension

You will need one of these:

 What your State Pension
forecast might look like

The earliest you can get your Breakdown

State Pension
is 1 December 2039 when you’ll be Amount based on your latest
67, National
Your estimate is Insurance record (5 April 2016)
£85.32 a week
£159.55 a which is £369.72 a month, or
£4,436.64 a year
Amount you may get if you continue

week to
contribute
£159.55 a week
Your estimate is based on the current law. The which is £691 a month, or
amount shown is not a guarantee and is based £8,297 a year
on…
Are you on track?
Stack up your savings
Ask for retirement
Other pensions quotes

At what age would you

like to stop work
State pension
Look
closely
Other at your
savings budget
and
spending
Consider your total
income needs for
NHS pension retirement
9. Ways to increase your benefits
 Buying more pension

Additional pension Cost depends on

(“AP”)
Your age
Buy extra guaranteed income
How many blocks you buy
In blocks of £250 per year
If you buy a survivor’s pension

Scheme pension
AP
You can pay by
A single lump sum

Paid every Monthly (via payroll)

year for life
Eligible for income tax relief
Making extra pension savings

Additional voluntary Size of your savings

contributions (“AVCs”) depends on
How much you pay in
Held separately from your
main scheme benefits Investment returns

In a pension savings account Management charges

Scheme pension
AVCs
You can pay by
Single lump sums

Choose how Monthly (via payroll)

you receive it
 Earlier retirement age
for 2015 Scheme only
Early retirement reduction Cost depends on
buy out (“ERRBO”) Your age
Reduce your Normal Pension Number of years’ reduction
Age (“NPA”) by up to 3 years
You can pay by

Scheme pension Monthly (via payroll)

Scheme pension
With ERRBO

An example
NPA in new scheme is
68
Same
Take out
Paid every year for Paid every year for pension
life from NPA life from earlier age a 3-year
paid from
ERRBO
65
10. Pensions tax
The Annual Allowance (“AA”)

Limit on tax-relieved pension savings in one

year for all pension savers, not just NHS
Headline AA is currently £40,000 pa
If you breach the AA, you may be subject to a tax
charge

A tax charge will fall

Excess due on this “excess
Value of benefits
accrual” unless there
earned over the
is sufficient “carry-
year
forward”
Annual
“Pension Input Allowance
Amount”
Testing against the AA
DB pension earned over the year (in real
terms)
NHS Pension built Pension built up
Pension up at end of at start of year
year (uplifted for
Scheme inflation)

“Defined Factor of Value of one

Benefit” 16 year’s DB
pension saving

DC pension earned over the year

AVCs
Gross contributions Value of one
“Defined
Contribution” paid year’s DC
pension saving
 Breaching the Annual Allowance

Value of one year’s £40,000* Excess

pension saving plus carry forward pension
DB + DC from last 3 years savings
(*ignores tapering)
Keeping track of the AA
The Scheme will send you a statement if you exceed
the AA

Your statement will show the

value of your pension savings for
the latest tax year…

…and the previous 3 years,

enabling you to work out your
unused AA to carry forward.

The Scheme will ONLY inform you about the value of your NHS benefits. You need to
also consider benefits you might be building up outside the Scheme.
Annual Allowance
How to pay…

Excess AA tax charge

pension
savings = Excess pension savings × relevant rate(s) of income tax

AA tax charge can be paid by the…

(1)…scheme member (2)…pension scheme

Taxable Self-assessment tax return “Scheme Pays”
income
Paid out of post-tax income Tax charge > £2,000

Benefits unchanged Benefits reduced

The AA can be less than £40,000

Test 1
“Threshold income”
No Annual
Is your taxable income* Allowance
more than £110,000? is £40,000
(*not just employment earnings,
exclude pension contributions)

Yes

Test 2
“Adjusted income”
No
Adding on the value of
your pension savings, Annual Allowance is
does this sum to more Yes lower than £40,000
than £150,000?
 The tapered AA

Each £2 of adjusted income above £150,000, reduces the AA by £1

With a minimum AA of £10,000

Adjusted income Annual Allowance

Less than £150,000 £40,000
£160,000 £35,000
£170,000 £30,000
£180,000 £25,000
£190,000 £20,000
£200,000 £15,000
More than £210,000 £10,000
The Lifetime Allowance (“LTA”)

Limit on tax-relieved pension savings over a

lifetime for all pension savers – not just NHS
LTA is currently £1,030,000 (2018/19)
If you breach the LTA, you may be subject to a tax
charge

A tax charge will

Excess
fall due on these
“excess
Total value of
benefits”
benefits across all
schemes Lifetime
Allowance
Testing against the LTA
*only when benefits are taken*

Actual pension
NHS Factor of
taken at
20
Pension retirement
Scheme

“Defined Cash lump sum Value of

(at face value) DB
Benefit”

Face value of cash taken

Or, value of savings when annuity Value of
AVCs bought DC
Or, value of savings allocated to
drawdown
Breaching the Lifetime Allowance

Value of Chargeable
LTA
benefits taken amount
Paying a Lifetime Allowance charge

Chargeable LTA tax charge, paid by the scheme

amount
= Chargeable amount × rate of either 55% or 25%

(1) (2)
Excess taken as lump sum Excess taken as pension
LTA tax charge LTA tax charge
LTA = 55% × (adjusted) chargeable amount = 25% × chargeable amount
(Remainder: 45% taken as lump sum) (Remainder: 75% taken as pension)

For higher rate taxpayers the

options are effectively equivalent
Ways to mitigate the
LTA tax charge

LTA protections
For a protected LTA higher than £1m
Giving up pension for
cash
Can reduce the value of benefits

Early retirement
Will reduce benefits at retirement

Allocation
Only member benefits tested

“Scheme Pays” for AA

Reduces the value of benefits
 Disclaimers and warnings
• The content of this presentation is designed to assist NHS employers in providing their employees with helpful
information regarding pension saving.
• None of the material provided is intended as financial advice or recommendation and NHS Employers accept no
liability arising from any use of the presentation.
• If employees require specific advice or help regarding their financial planning, they should contact an
Appropriately Qualified Financial Adviser.
• This presentation has been created using PowerPoint 2016. Spacing and formatting may change if a different
version is used. We recommend that users check the presentation before delivery to spot and correct any format
changes.
• NHS Employers cannot take responsibility for any amendments, edits and additions made from this point
forward by users.
• We have taken every care in the preparation of these materials, but it is not binding. If any error or omission
should subsequently be discovered, the scheme regulations take precedence.
• We understand the information, illustrations and figures quoted to be accurate at the time of writing (26 January
2018). However, over time these will become out of date – for example as tax bands or contribution rates
change over time, new legislation or tax treatments are introduced or altered, and new financial products and
systems are introduced. We take no responsibility in ensuring the materials are kept up to date.
• Any figures set out in this presentation are intended as illustrations only.
• The benefits provided by the NHS Pension Scheme are governed by Regulations. More details of the benefits
provided by the Scheme can be found on the Scheme website.
• Some of the information provided is “opinion based”, for example setting out “rules of thumb” or the “value of
the State Pension”. The materials covering these sections are therefore not intended to be statements of fact.
Very different viewpoints or opinions could reasonably be taken, and each individual will be different.
Specifically these opinions are not intended to direct individuals to take a particular course of action, but are
provided as generic ideas to be considered.