Pensions

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Have you received your 'Choice 2' letter?

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

 

By now, if you are eligible, you will have received a letter from NHS Pensions regarding your option to convert your 1995 section benefits to 2008 section benefits under the Choice 2 exercise.

For some of you this will be the first you will have heard about Choice 2 and you may be confused about what you are being asked to do.

Why is it important?

It is very important that you engage with this issue as it could make a significant difference to your future pension benefits.

Why you have received the letter

If you have received the letter it is important to understand why. You are a member of the 1995 section of the NHS Pension Scheme and you are going to join the 2015 NHS Pension Scheme when it is introduced on 1 April 2015 (or later if you have tapered protection).

The choice that you are being offered is not about whether or not you will join the new scheme, it is about the benefits that you have accrued in the 1995 section, prior to the introduction of the new scheme.

The choice that you are being offered is to either:

  • Keep the benefits that you have accrued in the 1995 section up to the introduction of the 2015 scheme (or later if you are joining with tapered protection)
    Or
  • Convert your accrued 1995 section benefits to 2008 section benefits

What happens if I convert my benefits?

If you convert your benefits from the 1995 to the 2008 section then this would impact upon your:

  • Accrual rate
  • Lump sum
  • Normal Pension Age

It may also impact upon your added years or Mental Health Officer (MHO) status if you have them.

The table below explains the key differences between the 1995 and 2008 sections:

  1995 section 2008 section
Accrual rate 1/80 of final salary for hospital doctors
1.4% of total career earnings for GPs
1/60 of final salary for hospital doctors
1.87% of total career earnings for GPs
Lump sum Generally 3 x pension with option to commute pension for extra lump sum No automatic lump sum, option to commute pension for a lump sum
Normal Pension Age 60 (55 for MHOs) 65
Late Retirement Enhancement No Yes
Added Years Can continue until contract end Would cease immediately
MHO Status Can continue Would cease immediately
Option to remain in 2015 scheme if you draw pre-2015 benefits and return to work No Yes

The normal pension age in the 2015 scheme is linked to the State Pension Age. So for some doctors the choice to convert your accrued benefits to a higher accrual rate, in recognition of the fact that you will probably work later than you may once have planned, will be attractive.

There is however much to consider and you are advised to study the supporting information which has been prepared by NHS Pensions to further aid your decision.

What happens if I keep my benefits?

If you do not wish to convert your accrued 1995 section benefits to the 2008 section then they will remain calculated in accordance with the 1995 section rules. You would still be able to draw your 1995 section benefits from the normal pension age of 60 (or earlier on Voluntary Early Retirement grounds, where an actuarial reduction would apply).

You should note that if you were also to draw your 2015 scheme benefits at age 60 that you would be subject to an actuarial reduction of around 5% per year. If you wished to draw your 1995 section benefits but not your 2015 scheme benefits then, unlike the 2008 section, you would not be able to continue to contribute to the 2015 scheme.

What's next?

Read the next update for February which focuses on the approaching deadline for Choice 2.

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