NHS Scotland Pension Review

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NHS Scotland Pension Review
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Overview of presentation

• Existing scheme
• 2005 proposals
• Response to consultation
• Changes
• New Scheme
• Transition
• Transfers
• Timetable
• Communication

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Existing Scheme

• Final Salary for Officer (employed) staff
• CARE for Practitioners
• NPA 60 (with NPA 55 for special classes)
• Spouses and registered partner benefits
• 1/80th pension accrual 3/80th tax free lump sum
  for each year
• 1.4 CARE accrual 4.2 lump sum
• Survivor benefits - lump sum and child pensions
• Employee contribution 5 manual workers and 6
  for others
• Employer contribution 14

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Existing pension scheme

• Example
• Jane has worked in the NHS for 20 years and her
  final salary is 30,000 (this is the best of the
  last three years)
• Janes pension 20 x 30,000 7,500
• 80
• Tax free lump sum 7,500 x3 22,500

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PREVIOUS PROPOSALS (2005)

• Introduction of NPA 65 for all staff
• Introduction of CARE for all NHS staff, current
  and new
• Current final salary scheme to end 2013
• Enforced transfer off all current staff to new
  pensions scheme (CARE) 2013

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Response to the previous consultation

• Existing staff retain NPA 60 (or lower for
  special classes)
• New staff have NPA 65
• Final salary scheme retained for existing and new
  staff
• Employer contributions capped at 14.2
• Tiered and increased employee rates.

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Proposals

• Changes to the existing scheme in order to
  include improvements to some benefits, make
  administrative changes and to ensure costs are
  sustainable
• Introduction of a new scheme for new staff from
  the end of 2007

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Changes for existing NHS workers 1

• Improvements
• Introduction of partner pensions, backdated to
  6/4/1988 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

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Changes for existing NHS workers 2

• Restructured Benefits or admin changes
• Multiple nominees for death benefits
• Removal of the HMRC earnings cap
• MPAVCs limit removed and Cash available
• Increased flexibility for lump sum
• Up to 5.25 x pension as cash tax free
• A correspondingly smaller annual pension

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Example change in lump sum for existing scheme

• John is aged 60 and is entitled to a pension of
  6,000 with a tax-free lump sum of 18,000. He
  can choose to take a bigger lump sum anywhere
  between 18,000 and 32,160.
• He opts to take the maximum tax-free lump sum of
  32,160 (25 of the combined value of his pension
  and lump sum after conversion), to increase its
  overall value by 14,160.
• In return for the extra 14,160, John gives up
  1,180 of his pension - exchanging 1 per annum
  of his pension for every 12 extra in his lump
  sum - to give him a total pension of 4,820.

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Changes for existing NHS workers 3

• Added years stopped (except existing contracts)
• Changed contribution rates for most
• Drop to 5 for lowest paid (under 15,107pa)
• Increase to 6.5 for middle earners (15,108 -
  60,880pa)
• Increase to 7.5 for higher earners (60,881 -
  100,000 p.a.)
• Increase to 8.5 for highest earners (100,001pa
  and above)

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What increased contributions mean

• If earning 14,000- and previously (officer
  status paying 6)
• -reduction 1
• - saving 140 pa gross, 109.20pa after tax
  relief
• If earning 25,000
• Additional 0.5
• Extra 125 pa gross, 110 pa after tax relief
• 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 110,000
• Additional 2.5
• Extra 2,750 pa gross, 1,650 after tax relief

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Employer costs

• Current rate 14
• Cap of 14.2 until 2016
• Cap of 14 from 2016
• Cost sharing of future increases
• HMT proposes Scotland applies same employee rate
  as EW hence Employer cap applied indirectly.
  

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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 Pension Scheme - more flexibility over lump
sum for new entrants

• Anne is 65 and has worked in the NHS for 40
  years. In her last ten years, the average of her
  best three consecutive years' pay is 15,000. She
  has earned a 40/60th pension - 40/60ths of
  15,000 - which is worth 10,000 a year.
• Under the new Scheme her options range from
• taking all her money in her pension, with no lump
  sum, giving her a pension of 10,000
• to taking a maximum lump sum of 42,857, leaving
  her a pension of 6,429. She gives up 3,571 of
  her pension to get 12 times that as a lump sum.
• Or, she can take any size of lump sum between
  those two figures - the bigger the lump sum, the
  smaller her pension. For example she can take a
  lump sum of 36,000, leaving her a pension of
  7,000, or take a lump sum of 24,000, leaving
  her a pension of 8,000

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New NHS Pension Scheme 2

• Best 3 year average in last 10 for pensionable
  pay
• Includes partner pensions for future service
• Same death benefit structure
• Same restructure and admin changes as existing
  scheme
• Same contribution rate structure
• No limit on service
• Only the new scheme will be available for any
  staff who have never worked in the NHS previously

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New Pension Scheme - stepping down before
retirement for new entrants

• Shona has worked for the NHS for 20 years and
  when she retires at 65, she has a salary of
  20,000. However, five years earlier, she worked
  in a higher paid post before deciding to step
  down to a less demanding role in the run up to
  retirement.
• After adjusting for inflation, the average of her
  best three consecutive years in her last ten
  years is 30,000, Her pension is based on these
  higher earning years, giving her a 20/60ths
  (20yrs multiplied by1/60th x 30,000) pension of
  10,000. This is compared to 6,667 if it had
  been based on her salary in her last three years
  of 20,000.

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New Pension Scheme - how all the new
flexibilities could work for new entrants

• Ruth joins the NHS Pension Scheme when she is 22
  years old. During her career, she works part time
  and takes career breaks. At 58 she has
  accumulated 25 years of full-time equivalent
  pensionable service.
• Seven years before the normal pension age of 65,
  Ruth then decides to step down to a less
  demanding role and her salary reduces by 25. She
  continues to work full time until she is 63, by
  which time she has accumulated 30 years' service.
• At 63 she reduces her hours to half time and at
  the same time, chooses to draw down half of her
  pension.
• Her final pay for the purpose of calculating her
  pension is the average of her best three
  consecutive years (as adjusted for inflation) in
  the last ten. In her case it is based on her pay
  for the three years prior to when she
  stepped-down. She takes 15 years of her pension,
  calculated at 15/60ths of this final pay figure.
  Because she takes it two years' early, Ruth's
  pension is reduced by 12.

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Continued.

• Ruth continues working until she is 65, earning a
  further 1 year of pensionable service to reflect
  her part time hours. This leaves her with pension
  rights based on 16 years' of pensionable service
  still to take.
• When she retires, at 65, she takes the rest of
  her pension. Her pension is 16/60ths of her best
  three consecutive years pay (as adjusted for
  inflation) in the last ten years.
• In this case the final pay is still the average
  of the three years pay before she stepped-down.
• She chooses to take the full lump sum available
  in respect of this second part of her pension,
  which reduces her pension. The reduced level of
  pension is added to the pension she took at 63,
  which has now increased by RPI revaluation during
  payment.
• During her retirement the combined pension
  continues to be increased in line with inflation

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Transition

• All current members to have a choice- likely to
  be after 2008
• Existing preserved pensioners who return to the
  NHS will also have a choice
• If return after 5 years will be treated as new
  employee

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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-reversible decision

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Likely Timetable

• Consultation starts October for 3 months
• Responses checked and proposals to ministers
  January 2007?
• Decisions taken February 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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Communication

• Review Plans
• Payslip insert
• Consultation document
• SPPA Website www.sppa.gov.uk
• Consultation document
• Q and A sheet
• Summary of changes
• Employers role
• Regional seminars during October
• Local cascading of information

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Summary

• Full protection for existing staff
• Some benefit improvements
• Some changes
• Employer rates capped, so sustainable scheme
• New staff get same main arrangements with NPA 65
  with slightly different benefits more
  flexibility around retirement
• Choice of transfer for existing staff
• Communication needed

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How can I respond to the consultation?

• By contacting your trade union
• By contacting your staff associations
• By e-mail to the review team at
• nhspensionsreform_at_scotland.gsi.gov.uk
• In writing to
• NHS Pensions Review Team
• SPPA, 7 Tweedside Park, Tweedbank,Galashiels TD1
  3TE
• Telephone helpline 01896 893298 and further
  information on www.sppa.gov.uk

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Questions and Answers