- Ursula’s a 50 year old Anaesthetist in Leeds with a pensionable pay of £127,000 a year as at 31 March 2019.
- She’s been building up benefits under the NHS career average scheme since 1 April 2015 and has 15 years’ pre April 15 final salary benefits in the NHS 1995 section. As long as she has no break in service of more than five years, the latter remain linked to her final salary when she retires.
- Her contributions to the scheme are 14.5% of pensionable salary. In 2019/20 she expects to earn an additional £8,000 in non-pensionable overtime.
- She receives a salary award of £3,810 on 1 April 2019. As she has no carry forward available, she’s concerned that the impact of the tapered annual allowance means she should leave the NHS scheme.
Ursula plans to retire in 10 years’ time at age 60 when she’ll be able to take her 1995 section benefits without actuarial reduction. She’s not sure whether she’ll take her career average benefits at the same time (in which case they’ll be actuarially reduced for early payment) or at a later date.
The table below summarises the outcome of our analysis shown as the overall benefit to Ursula against her costs. For the 50:50 plan, we’ve assumed that Ursula pays 50% of the standard NHS contribution and receives 50% growth in her career average benefits in return. We’ve assumed her preserved final salary benefits are unaffected by this election and remain linked to the salaries she earns in the career average scheme.
What are her options?
| Option 1 Hypothetical 50:50 plan | Option 2 Full contribution | Option 3 Stay in scheme on full contribution but decline overtime |
Ursula’s costs (tax charge + gross contribution) |
£9,484 |
£24,140 |
£22,540 |
Additional built up benefits |
Pension = £2,356 Lump sum = £2,143 |
Pension = £3,615 Lump sum = £2,143 |
Pension = £3,615 Lump sum = £2,143 BUT £8000 less taxable income |
Estimated gross value of additional pension over 20 year retirement |
£89,445 |
£137,249 |
£137,249 |
Gross costs as a proportion of estimated total gross benefits |
10.6% |
17.6% |
21.2% |
In Ursula’s case the 50/50 plan looks like a reasonable option. But analysis will be needed in any particular case.