Pensions

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Additional pension purchase FAQs

Answering questions on additional pension, what it costs, what the payment options are and how it is affected by leave or absence and other issues.

 

What is Additional Pension?

From 1 April 2008 a facility was introduced to allow members to purchase additional annual pension in units of £250 up to a maximum of £5,000 per annum (1995/2008 section) or £6,500 (2015 scheme members).

This is the amount of additional pension being purchased and not the cost of the purchase.

 

Am I eligible to buy Additional Pension?

Yes, provided you are:

  • a contributing member; and 
  • in good health and not absent from work for any reason; and
  • have not yet reached age 60 or 65 (1995 section members), 65 (2008 section members) or your State Pension Age (2015 CARE scheme members).

 

I have an added years contract and am likely to have maximum service. Can I buy Additional Pension?

Yes. Your added year’s contract will not restrict any additional pension purchase you may wish to make.

 

How much does Additional Pension cost?

The cost varies and is determined by the following factors:

  • your age at your last birthday
  • your gender
  • the amount of additional pension being purchased
  • the end date chosen for the contract (either age 60, 65 or your State Pension Age)
  • whether the cost is being met by a single lump sum payment or by regular contributions
  • whether you have chosen to purchase personal benefits only or to also provide benefits for dependants.

There is an additional pension calculator on the NHS Pensions website, which will illustrate how much additional pension will cost. 

 

How can I apply for Additional Pension?

Using the available calculators you can work out the cost of purchase by regular payments or lump sum. Should you wish to proceed you need to complete the application form available from the relevant pensions’ agencies web sites.

  • If you are working in England or Wales use the form Election to purchase Additional Pension (AP1) (only complete this form if you do not have access to the calculator)
  • If you are working in Scotland complete forms ABPRE and PAPB
  • If you are working in Northern Ireland complete forms AP1 and AP2, if a member of the 1995 or 2008 Schemes. If a member of the 2015 Scheme, complete forms AP1-2015 and AP2-2015

What payment options are available?

You have the choice of paying for the additional pension by either lump sum or by regular instalment from your salary.  If electing to pay by regular instalment you must chose a period of between one and 20 years, ending at your normal pension age (60, 65 or your State Pension Age).

 

If I pay by regular instalments is the cost of my Additional Pension fixed?

No. Instalment purchases are subject to review by the scheme Actuary.  These reviews take place every four years.  Should the review result in an increase to the cost of the additional pension you will have the opportunity to terminate your contract.

 

Can Additional Pension be used to increase my dependants’ benefits?

Yes. The additional pension benefit can increase either your pension or can also provide increased dependants benefits.  You are not able to buy additional pension which will solely improve dependant’s benefits.

If you purchase additional pension including dependant’s benefits this provides for a spouse/partner pension equal to 3/8ths of your additional pension and children’s benefits equal to 6/8ths of your additional pension.

 

Will Additional Pension increase my lump sum?

No.   Additional pension will only increase the annual pension and will not affect any automatic or mandatory lump sum benefits payable from the scheme. 

However, the additional pension will be taken into account when calculating the pension commutation to arrive at the maximum 25% lump sum payable from the scheme. 
Please refer to our FAQ on tax free lump sums for further information.

 

How do I purchase Additional Pension by lump sum?

When paying by lump sum, the Pensions Agency will invoice your employer/PCO for the full amount due and you need to pay this by cheque within 30 days.

 

How are the contributions for Additional Pension collected?

If the contributions are made by regular instalments, they can be taken from your salary through PAYE in the same way as your main scheme pension contributions.  

For primary care doctors buying additional pension, the contributions are deducted in the same way as the main scheme contributions.  GP locums will pay the additional contributions on locum forms A & B.

 

Does the contribution attract tax relief?

Yes. All pension contributions attract tax relief.  If paying by regular instalments tax relief is applied through PAYE.  If paying by lump sum, you will have to complete a self-assessment tax return to claim tax relief.

 

Is Additional Pension included in my pension growth for the purposes of the Annual Allowance?

Yes.  The Annual Allowance is the maximum tax-privileged amount of growth and contributions you can have in all your pension arrangements (excluding State pensions) in a tax year.

Please refer to our FAQ on the ‘annual allowance’ for further information.

 

Can I take a break in paying instalments towards Additional Pension?

No.  It is not be possible to take a break or change the rate of contributions from what was agreed in the additional pension contract, unless the contribution rates are changed by the scheme Actuary.

If you have a break in service from NHS employment, then contributions will cease for this period, and if you return within 12 months contributions can start again.  If there is a break in service of more than 12 months, then the same contract cannot be continued, but it might be possible to take out a new contract.

 

What happens if I buy Additional Pension and then take volutary early retirement before the scheme normal pension age?

If you are purchasing additional pension by regular instalment and retirement takes place before the agreed end date for the additional pension contract the benefits will be pro-rated to reflect the amount actually purchased and then actuarially reduced.
If you are purchasing additional pension by lump sum and retirement takes place before the agreed end date for the additional pension contract the benefits will be actuarially reduced.

Please refer to our FAQ’s on Voluntary Early Retirement for information on the application of the actuarial reduction factors.

 

What happens if I retire straight after electing to purchase Additional Pension?

If you elect to pay via regular instalments and retirement takes place within 12 months of commencing the purchase, then all contributions will be refunded.

If you elect to purchase via lump sum and retirement takes place within 12 months of making the payment, then the purchase is still included in the benefits payable.  The benefits will also be actuarially reduced when retirement takes place before the agreed end date for the additional pension contract.

  

What happens if I retire on health grounds?

If you retire on health grounds within one year after the date that the election to buy the additional pension was accepted (regular instalment or lump sum payment), you will receive a refund of the contributions paid. You will not be credited with any additional pension in this instance.

If you retire on health grounds, one year or more after the date when the election to buy the additional pension was accepted (regular instalment or lump sum payment), the full purchase becomes payable.

 

What happens if I die before retirement?

If you elected to buy the additional pension by regular instalment or lump sum (including dependant benefits) and then die within one year after the date that the election to buy the additional pension was accepted, your dependants will receive a refund of the contributions paid. Neither you nor your dependants will be credited with any additional pension.

If you elected to buy the additional pension by regular instalment or lump sum (including dependant benefits) and then die one year or more after the date that the election to buy additional pension was accepted, the full dependants additional pension will come into payment immediately, even if you were paying by regular instalment and had not completed the purchase.

If you elected to buy the additional pension by regular instalment or lump sum (personal cover only) and then die within one year after the date that the election to buy the additional pension was accepted, your estate will receive a refund of the contributions paid.

If you elected to buy the additional pension by regular instalment or lump sum (personal cover only) and then die one year or more after the date that the election to buy additional pension was accepted, nothing is payable.  No refund or benefits are payable. 

 

What happens if I am made redundant?

If you are made redundant then you will be credited with the amount of additional pension actually purchased at the date of leaving but this will be actuarially reduced.  The reduction will apply irrespective of whether you are purchasing additional pension by lump sum or regular instalments and regardless of whether you have used your redundancy payment to fund for unreduced main scheme benefits.

 

I am taking partial retirement (draw down) from the 2008 section/2015 CARE scheme. Can I take part of my Additional Pension?

No.  You can either take the entire additional pension now, or leave it all until your final retirement.
If you are retiring before age 65/your State Pension Age and chose to take the entire additional pension early this benefit will be reduced as detailed immediately above.

 

Does Additional Pension attract increases in line with inflation?

 Yes.  The additional pension purchased is increased in line with monthly increases in the rate of inflation both before the additional pension comes into payment and also whilst it is being paid.  If the application to buy additional pension was made:

  • on or before 31 March 2011 - it will attract pre-payment increases in line with the Retail Prices Index (RPI) and in-payment increases in line with the Consumer Prices Index (CPI).
  • on or after 1 April 2011 - both the pre-payment and the in-payment increases will be in line with the CPI.

The scheme requires that increases to benefits are paid in line with the Pensions (Increase) Act 1971.  This currently links increases to benefits to CPI.
Please refer to our FAQ’s on ‘Pensions Increase’ for more information.

 

What happens if I die after retirement?

If you die after retirement having purchased additional pension with dependants’ benefits, the dependants’ additional pension will come into payment immediately.

 

Can my employer purchase Additional Pension on my behalf?

Yes.  Your employer can purchase additional pension, but by lump sum only.  The same restriction on the ability to purchase continue to apply (i.e. you cannot be absent for any reason and have to still be in pensionable service).   Additionally, if such a purchase is made on your behalf and you retire on health grounds within 12 months of the purchase the benefit will not become payable and the cost will be refunded to the employer.

 

I have MHO status. Can I buy Additional Pension to age 55?

No.  Whilst you may be entitled to retire on an unreduced pension from age 55 you can only take an additional pension contract to age 60 or 65.  If you choose to retire prior to your contact end date your additional pension will be actuarially reduced.

 

What effect will switching to the 2008 section through the Choice exercise have on my Additional Pension?

 If you chose to transfer to the 2008 section your additional pension will have been transferred at the date of your NHS choice.

As the normal pension age in the 2008 section is age 65, any additional pension being purchased to age 60 in the 1995 section will automatically become additional pension payable at age 65 in the 2008 section. Due to the lower cost of additional pension payable from age 65 the contributions paid up to the date of choice may be more than required. Also, ongoing contributions will be less than when the contract was first taken out.

Wherever possible the amount of additional pension being bought will remain the same i.e. £1,000 a year payable at age 60 in the 1995 section will become £1,000 a year payable at age 65 in the 2008 section.
For some purchases this may mean that too much has already been paid in the 2008 section. Where this is the case, the additional pension being purchased will be increased until the overpaid contributions are exhausted.

If, before the overpaid contributions are exhausted, the maximum annual amount of additional pension is exceeded, the remaining contributions will be converted to a membership credit. It is important to note though that membership limits will continue to apply and any membership over the 45 years maximum at retirement will not count for the calculation of pension benefits.

 

What effect will transitioning to the 2015 CARE scheme have on my Additional Pension?

If you have already bought or are buying additional pension by payment of regular additional contributions and you move to the 2015 Scheme you can continue to make the additional contributions up to the chosen contract end date or up to your last day in the 2015 Scheme if earlier.

If the additional pension is in the 1995 Section only you will be able to claim the value of the additional pension benefits from the payable date in the contract, without the need to claim all your 1995 Section benefits and without the need to formally retire, so no 24 hour break is needed. You will also be able to continue to build up benefits in the 2015 Scheme.

If the additional pension is in the 2008 Section you will only be able to access the additional pension element when you claim your 2008 Section benefits.

 

I have an Additional Pension contract linked to my 1995/2008 section benefits. Can I purchase Additional Pension in the 2015 scheme on top of this?

Yes you can purchase up to £6,500 of Additional Pension in the 2015 scheme on top of any Additional Pension you may have in the 1995/2008 section. You are restricted to buying no more than £6,500 of additional benefits in the 2015 CARE scheme and so any additional pension purchase made may limit your ability to buy the Early Retirement Reduction Buy Out (ERRBO).

 

Can I cancel a regular contribution Additional Pension?

Yes.  You can do so by notifying your employer in writing.  The cancellation will take effect from the first pay period after the notification of cancellation is received.