Pensions

Last updated:

Choice 2 exercise

2015 NHS pension scheme

Read the monthly updates written by the BMA Head of Pensions over the last year to help you familiarise yourself with the new 2015 NHS Pension Scheme which launched on 1 April 2015.

Start with our general overview of the scheme:

1  Stay one step ahead - get the basics of the scheme
2  When can I draw my pension benefits?
3  Auto-enrolment and National Insurance rebates
4  Opting out of the NHS Pension Scheme
5  Choice 2 exercise
6  Contributions
7  Are you ready for Choice 2?
8  What happens to my Mental Health Officer status?
9  BMA response to the 2015 NHS Pension Scheme draft regulations
10  Have you received your 'Choice 2' letter?
11  Act now to make your choice 2 decision
12  A recap on the basics of the 2015 NHSPS

 

What is 'choice 2'?

To better understand the choice 2 exercise, we need to go back a few years.

As part of the changes that were made to the NHSPS from 1 April 2008, the choice exercise was a one-off opportunity open to all members of the 1995 section.

This allowed members to transfer all service, including any additional service purchased through an added years contract, into the 2008 section of the NHS pension scheme. This exercise was completed on 31 March 2012.

 

So what is 'choice 2'?

As part of the transition to the 2015 NHSPS (which will be introduced on 1 April 2015), the Department of Health has confirmed that the choice exercise should be re-opened to allow members who chose to stay in the 1995 section to review their decision.

This will be known as 'choice 2' and will be open to all members of the 1995 section not covered by 'full protection' from the 2015 scheme changes. 

It will be a one off choice which cannot be reversed. If you move, all of the pension that you have earned to date in the 1995 section will be treated under the rules and regulations of the 2008 section. You will not be able to change your decision later. You will, however, still be required to join the 2015 section on 1 April 2015 or at your later tapered protection date.

This is likely to take place during 2015 for members of the Scotland and Northern Ireland NHS pension schemes. 

Letters will be sent out to members of the England and Wales scheme during October and November 2014, with a three month deadline for a response. England and Wales members will be able to model their own personal situation using an online calculator and we are working with the Scotland and Northern Ireland NHS pension schemes to ensure this is also available to members there.

Pensions choice exercise 2 infographic

 

What happens if I choose to transfer?

If you choose to transfer to the 2008 section your membership up to 31 March 2008 will transfer from the 1995 section to the 2008 section. The amount of membership you will get as a result of this transfer is dependent on your age on 1 October 2009. 

Any membership from 1 April 2008 will automatically become membership in the 2008 section.

If you are under 60 and move to the 2008 section you will receive a 'day for day' credit for the membership you transfer over. In other words, one days' membership in the 1995 section will be equal to one day in the 2008 section.

If you are 60 or over you will not get a day for day credit for your membership. You will get less than one day transferred for each day of membership. The actual amount of membership transferred depends on your age and is worked out using a conversion factor. The reason for this is that, unlike the 1995 section, the 2008 section applies late retirement factors after the normal pension age.

 

What are the differences between the 1995 and 2008 sections?

Let us examine some of the key differences between the 1995 and 2008 sections.

Early retirement

Members of the 1995 section Members of the 2008 section
Option to take their pension from age 50 Option to take their pension from age 55
If benefits are claimed before age 60 they will be subject to an actuarial reduction If benefits are claimed before age 65 they will be subject to an actuarial reduction

 

Accrual rate

Members of the 1995 section Members of the 2008 section
Accrual rate of 1/80 of final salary for each year of service for secondary care doctors Accrual rate of 1/60 of final salary for each year of service for secondary care doctors
A factor of 1.4% of total career dynamised earnings for GPs A factor of 1.87% of total career dynamised earnings for GPs

The accrual rate is more generous in the 2008 section, but as explained above, the age at which you can access your benefits in full is later.

 

Pension changes and transitional protections

Members who were within ten years of the scheme normal pension age on 1 April 2012 will be able to remain in the 1995 section of the scheme until retirement.

For members with tapering protection, moving to the 2008 section would end their eligibility for protection from the 2015 proposed changes.

 

Mental Health Officer (MHO) status

Members with MHO status should note that this will not apply in the 2008 section and that they would lose it immediately upon transfer.

 

Added Years

These contracts will not continue in the 2008 section and members would lose the option to make further contributions to their added years contract.

 

Redundancy

Members who are subject to redundancy, over age 55, who are considering using their redundancy payment to fund the early payment of unreduced benefits may benefit from membership of the 2008 section due to the better accrual rate in this section of the scheme.

 

Advantages of transferring

Making the choice to move from the 1995 section to the 2008 section is likely to benefit those members who:

  • are likely to retire at around age 65 (the later the retirement the more beneficial)
  • have tapering protection and do not wish to commute pension for lump sum, or only wish to commute a small amount

 

Disadvantages of transferring

Making the choice to move from the 1995 section to the 2008 section is likely to be less beneficial to those members who:

  • are buying added years and who wish to complete the purchase
  • have Mental Health Officer (MHO) status
  • have tapering protection and do not wish to lose it
  • have tapering protection and expect to enjoy further salary growth (i.e through promotion or pay awards)

 

What's next?

Read the next update for September which focuses on the contributions

If you have any questions or points to make then please contact the Pensions team