NHS Pension Review

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NHS Pension Review

• England and Wales Proposals for consultation

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Overview of presentation

• 2005 proposals
• Existing scheme
• Protection
• Changes
• New Scheme
• Transition
• Transfers
• Timetable
• Communication

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2004 PROPOSALS

• Introduction of NPA 65 for ALL staff
• Introduction of (inferior) CARE for all NHS
  staff, current and new
• Current final salary scheme to end 2013
• Enforced transfer off all current staff to new
  (inferior) CARE scheme in 2013
• Reduced pensions for all current and new staff
• Doctors 10-20 pension reduction

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Protection

• Public Services Forum Framework
• Protection for existing staff for existing
  benefits including NPA, unless agreed changes.
• No detriment.
• Same scheme design
• Lifetime protection (Not just until 2013).

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Changes for existing NHS workers 1

• Improvements
• Introduction of partner pensions, backdated to
  1/4/1988 partners definition to be determined
• Removal of spouses pension cessation on
  re-marriage
• Standardised short term survivors pension at 6
  months regardless of child dependants
• Childrens pensions payable until 23 for all
• Revised abatement definition less abatement
• New guaranteed AVC arrangement (5K of pension)

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Pension enhancements e.g. Added years

• New contracts will stop April 2008.
• Existing contracts will continue unchanged.
• Possibly will agree a further 1 year extension
  for new applications.
• New arrangement post April 2008
• 5K pension benefit purchase
• Guaranteed benefit
• Details cost to be agreed.

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Changes for existing NHS workers

• Restructured Benefits or admin changes
• Multiple nominees for death benefits
• Removal of the HMRC earnings cap
• Possible improved benefits for those without
  partners
• Increased flexibility for lump sum
• Up to 5.25 x pension as cash tax free
• A correspondingly smaller annual pension

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Changes for existing NHS workers

• Less Positive Changes
• Added years stopped (except existing contracts)
• No change to added years contribution rates
• Changed contribution rates for most
• Drop to 5 for lowest paid (under 15,107pa)
• Increase to 6.5 for middle earners (15,108 -
  60,880)
• Increase to 7.5 for higher earners (60,881 -
  100,000)
• Increase to 8.5 for highest earners (100,001pa
  and above)

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Why increased contributions?

• 1. Longevity living drawing pensions longer
• 1st employee increase contributions gt 20
  yrs!
• 2. Improvements
• e.g. less abatement, better spouse and
  children benefits, more flexibility,
• 3. Pay Increases
• AFC
• Consultants
• GP

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Cross subsidy

• 4. Cross subsidy
• Currently doctors pensions are valued at
  equivalent to a 24-25 contribution rate
• All doctors get better value for their
  contributions
• Due to the way the scheme works
• We pay 6 (employee) and 14 (employer) 20
• Even with 8.5 and 14 22.5
• Even with higher rates high earners e.g.
  doctors still get better value.

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What increased contributions mean

• If earning 49,000
• Additional 0.5
• Extra 245 pa gross, 147pa after tax relief
• If earning 90,000
• Additional 1.5
• Extra 1,350 pa gross, 810 after tax relief
• If earning 100,000
• Additional 2.5
• Extra 2,750 pa gross, 1,650 after tax relief

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Widowers 1988 problem

• Widowers problem continues for current scheme
• Solved for people who transfer to new scheme
• Solved for people who enter new scheme
• BMA still working to prepare to challenge the
  widowers issue legally.
• Preparing initial work on cases now

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New NHS Pension Scheme 1

• For new starters from date of introduction (Late
  2007 early 2008?)
• Matches existing structure final salary for
  employed and CARE for practitioners
• Pension age increased to 65
• 1/60th Pension only accrual lump sum by
  commutation
• 1.87 Practitioner accrual lump sum by
  commutation
• Flexibilities around retirement

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New NHS Pension Scheme 2

• Includes partner pensions for future service
• Best 3 year average in last 10 for pensionable
  pay
• CARE for practitioners
• Same death benefit structure
• Same restructure and admin changes
• Same contribution rate structure
• Will be automatic entry for everyone who has
  never worked in the NHS previously

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Transition

• All current members to have a choice to transfer
  into the new scheme if they wish
• Existing preserved pensioners who return to the
  NHS will also have a choice
• If return after 5 years will be treated as new
  employee
• Choice exercise likely to be 2008 but may be
  backdated

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Transfers

• If elect to transfer will move ALL service to new
  scheme
• Transfers probably on a year-for-year basis
• Will benefit from all new rules including full
  retrospection for partners and flexibility around
  retirement
• One off non-reversable decision. Advice
  required!

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Possible Timetable

• Consultation started finished
• Responses checked and proposals to ministers
  December 2006? (still in discussions!)
• Decisions taken May / June 2007?
• Work on new scheme and changes
• 31 December 2007 New Scheme starts??
• 1 April 2008 Changes to existing scheme??
• Beyond 2008 - Choice exercise starts?

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Summary

• Full protection for existing staff scheme and
  NPA
• Some benefit improvements
• Need to pay more between 0.5 - 2.5 gross
• New staff get same main arrangements with NPA 65
  with slightly different benefits more
  flexibility around retirement
• Choice of transfer for existing staff
• In real world of pensions many people have seen
  50 reduction in pensions past 5 - 10 years

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NHS Pension Review

• England and Wales Proposals for consultation