NHS pensions update

26 March 2020

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As the volume of overtime undertaken by frontline NHS staff increases exponentially in response to the Coronavirus crisis, we think an update on the pension issues potentially impacting doctors is timely.

The role of advisers in ensuring that our selfless NHS staff are appropriately and accurately informed has never been more important.

Clinicians and the tapered annual allowance

Changes to the tapered annual allowance announced at the March 2020 Budget and expected to lift all but the highest paid out of the “taper trap” are due to take effect from 6 April 2020. In view of the impact the exceptional amount of additional shift work is having on the threshold income of healthcare professionals right now, it’s worth remembering the interim measures put in place for clinicians who may face an annual allowance tax charge in relation to tax year 19/20.

  • In England & Wales, NHS employers will pay clinicians’ annual allowance charges incurred in 2019/20.  This is achieved by the employer making a contractually binding commitment to “fully compensate” the individual for the impact on their retirement income of a “scheme pays” deduction.
  • In Scotland, NHS staff have been given the option of taking the value of their employer’s pension contribution as an addition to basic pay.

We’ve not yet seen a Government response to its 2019 consultation on increased flexibilities for the NHS pension scheme, although the Chancellor has confirmed that proposals to allow senior clinicians to receive extra pay in lieu of pension contributions will not be taken forward. 

It may be that the dust gets brushed off some of these previous proposals, if it turns out that the overhauled tapered annual allowance doesn’t go far enough to protect the most dedicated NHS staff working the longest hours from an annual allowance tax charge.

NHS retirees returning to service during the Coronavirus outbreak

In a widely-anticipated move, the Government is encouraging retired health and social care professionals to return to the NHS to join the fight against Covid-19.  In order to prevent post-retirement employment having disadvantageous consequences for the pension income of such individuals, emergency amendments to NHS pension regulations have been tabled. 

These form part of the Coronoavirus Bill 2019-21 which received Royal Assent on 25 March 2020.  The amendments (which the Government will have the power to implement immediately or retrospectively) apply across the United Kingdom and have 3 effects:

  • The pension income of special class status holders who return to NHS employment won't be abated (suspended).   Special Class status holders are nurses, physiotherapists, midwives and health visitors in post on or before 6 March 1995 and Mental Health Officers (MHO) with at least 20 years’ MHO experience and in post on/before 6 March 1995.    The wider pension abatement rules remain unchanged.  In particular this means that individuals who retired “in the interest of efficiency of the service” could still have their pension suspended on return to work.
  • The pension income of 1995 Section NHS members who return won't be suspended if they work more than 16 hours per week in the first calendar month following retirement.
  • Members who have flexibly retired using the NHS “draw down” facility will not be required to maintain a reduction in their pensionable pay of a minimum of 10%.

You should note that there is no proposal to amend regulations prohibiting pensionable re-employment of 1995 section retirees.  Any clients who have retired and drawn 1995 section benefits will therefore be able to return to the NHS, but will not be able to resume pensionable employment under the NHS pension scheme. Employers will need to enrol returners who are eligible workers into an alternative pension scheme.

Please also note that these measures are temporary. The Government has stated that a six month notice period will be given to staff and employers before they are disapplied.

Death benefits

Recent social media chatter suggests there’s concern amongst health care professionals who have made taxation-related decisions to opt out of the NHS Pension Scheme, that their loved ones will no longer be entitled to any scheme benefits in the event of their death. So clients need reassurance that this is not the case.

Although the loved ones of individuals who’ve opted out will no longer be entitled to death in service benefits if the deferred member passes away, they remain entitled to death in deferment benefits. These include a lump sum death benefit and both eligible adult survivor’s and eligible children’s pensions. 

Further details on calculation of these benefits can be found in the 1995/2008 and 2015 NHS pension guides for England and Wales - as well as the guides for Scotland and Northern Ireland.

It goes without saying that any advice given to clients on whether to remain in or leave the NHS pension scheme should cover the implications for payment of survivor benefits.  See our policy paper Why paying a tax charge isn’t always a bad thing for further information. 

 

About the author

Moira Warner

Senior Pension Development and Technical Manager

Moira spent the early part of her career with a number of European investment banks both here in the UK and overseas with responsibility for sales of money market securities and fixed income products to institutional and Central Bank clients. In the early noughties she moved to the life insurance sector where she has held various pensions technical roles supporting both provider, product and proposition/ sales. Moira specialises in Public Sector pensions and worked closely with a number of key Public service pension schemes and the Local Government Association to help ensure the compliant overlay of pension freedoms on scheme regulations and practices. Moira moved to Royal London in August 2018 and is involved in developing adviser facing content, writing articles and commenting for the press. At weekends Moira can usually be found working in her garden but she doesn’t let her passion for plants prevent her from also indulging in her love of travel.

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The Royal London Mutual Insurance Society Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. The firm is on the Financial Services Register, registration number 117672. It provides life assurance and pensions. Registered in England and Wales number 99064. Registered office: 55 Gracechurch Street, London, EC3V 0RL.