UK NHS Pension Changes April 2008 - What You Need To Know
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As you are probably aware, the New NHS Pension Scheme goes live from April 1st 2008.
This scheme is automatic for new members from that date, and a major change here is that the normal retirement age is 65, not 60.
However, the existing scheme also changes in some key areas for those of you who opt to stay as you are.
We concentrate here on these changes as most of our clients are in their 40's and 50's and are almost certain to remain in the current scheme. You will automatically become members of the updated existing scheme from April 1st next year.
So how are you going to be affected?
Well, there are quite a few changes, so lets start with the bad news! The flat 6% cost will now be tiered, depending on your earnings:
Up to £19,165 6%
Up to £63,416 6.5%
Up to £99,999 7.5%
£100,000 plus 8.5%
As you can see, if you earn more you pay more. If your NHS income is, say, £90,000, you are currently paying £5,400. From April it will be £6,020, although this is gross and you get tax relief on these figures (meaning as a higher rate taxpayer you would pay £3,612 on the latter figure).
The good news is that you will retain the normal retirement age of 60, or age 55 in certain special cases such as Mental Health Officers.
Other key changes are:
The earnings cap for hospital based individuals is being abolished. So, although higher earners will be paying more as above, you will benefit from a real pension increase if your NHS earnings are above £112,800 pa. (e.g. if you have a merit award).
The General Dental Practitioner earnings cap is also being removed - circa £110,000. So for those of you earning more than this figure, from 2008 you will benefit from increases to your pension.
Also for this group, and also for General Medical Practitioners, your pensionable earnings revaluation on dynamisation will now be determined by the retail price index plus 1.5%, rather than the increases in each practitioner profession.
A key change for benefits to partners on death have also been announced. Qualifying partners now include someone you have nominated who you have an exclusive and long-term committed relationship with for at least two years and who is financially dependant or inter-dependant. In addition, if such a partner were to remarry or cohabit, they keep their survivor pension (a huge benefit).
It should be mentioned here that the ill health retirement rules are being reviewed seperately, and this review is due to report early next year. As these are very important benefits, we will update you when there is more news.
Buying extra pension benefits has also got new rules, one of them bringing the NHS scheme in line with the overall 'A DAY' pension changes that were introduced in April 2006. This means you can contribute as much as you earn. Secondly, the option of Added Years is being removed entirely - existing contacts will be honoured - (you need to have your application in by the end of March 2008 if you wish to use this route). The replacement is called 'buying additional pension, with a maximum of £5,000 per annum.
At retirement, you can take your pension and lump sum as usual, but there is an option to commute some of the pension to give more lump sum. As this lump sum is tax free, it may well prove popular. For example, for someone with around 36 years service and an NHS income of £100,000 pa:
Typical pension/lump sum - £45,500/£136,500
Option pension/lump sum - £36,500/£244,000
Finally, you can now work on to age 75. Please apply early to avoid the rush :)
We have not covered all the various changes here. Make sure you are aware of how these changes affect your benefits.
The Financial Tips Bottom Line:
As the NHS Pension Scheme is the foundation for many dentists and doctors, ensure you are up to date with these changes, and understand what they mean to you.
You will receive information packs from the NHS Pension Agency with your pay advice in due course.
ACTION POINT
For full details of the changes go to:
www.nhspa.gov.uk/site/nhs/index.htm
For the pension/lump sum calculator go to:
www.nhspa.gov.uk/site/nhs/Pensions_Contribution.html
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Ray Prince is an Independent Financial Planner with Rutherford Wilkinson plc, and helps UK Resident Doctors and Dentists get the best deals on mortgages, protection and investments, as well as helping them achieve their financial objectives. Just visit www.medicaldentalfs.com to get your free retirement planning guide. Rutherford Wilkinson plc is authorised and regulated by the Financial Services Authority.
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