Pensions

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Final pensionable pay FAQs

This FAQ is only relevant for Secondary Care doctors in the 1995 section of the NHS Pension Scheme and for those secondary care doctors who have transitioned to the 2015 scheme (as benefits accrued from the 1995 section will continue to be calculated on this basis until 'final salary' linking is lost).

What is final pensionable pay?
What is the referencing period for the best of the last three years?
How is the best of the last three years determined?
I have had an increment during my last year. How will this affect my final pensionable pay?
How are my pension benefits calculated if a previous years' pensionable pay is highest?
I have received a backdated increment or award. How will this affect my final pensionable pay?
What if I have more than one job?
What if I have not worked for part of the 3 years immediately prior to retirement?
Does reduced sick pay or nil pay affect my final pensionable pay?
I have stepped down into a lower paid job. Will this affect my final pensionable pay?
I have reduced my hours in the lead up to my retirement. How will this affect my final pensionable pay?
Which elements of my pay are pensionable?

 

What is final pensionable pay?

Your final pensionable pay is the pensionable income paid during the best year of the last three years of pensionable service. If you are working part-time or beyond whole-time hours it is your whole-time equivalent pensionable salary that is used.

If you are now in the 2015 scheme your 1995 section benefits will continue to be linked to your post 2015 final pensionable pay for so long as you do not have a break in pensionable service of 5 years or more. Should you have a break in pensionable service of 5 years or more your 1995 section benefits will be linked to the best of the last three years pensionable pay leading up to the break.

 

What is the referencing period for the best of the last three years?

The 'last three years' is generally defined as sets of 365 paid days of pensionable employment, counting back from the last day of pensionable service. If you have transitioned to the 2015 scheme this period may differ if you have had a break in pensionable service of 5 years or more.

For example, if your last day of pensionable service was 27 April 2013, the referencing periods will be from:

  • 28 April 2012 to 27 April 2013
  • 28 April 2011 to 27 April 2012
  • 28 April 2010 to 27 April 2011

How is the best of the last three years determined?

At the end of each scheme year your employer is responsible for notifying the Pensions Agency of your annual pensionable earnings.

When you retire or leave the NHS, your employer will advise the relevant pensions agency of your pensionable earnings during the three years leading up to your retirement/departure from the NHS. The best year will be used to calculate your pension. For those in the 2015 scheme account will need to be had of any break of 5 years or more as the referencing period will lead up to that.

The last 12 months of service usually produces the highest income of the final three years. However, this may not always be the case. If you previously earned a higher income (for example from a Medical or Clinical Director post), which finished a year or two before retirement then an earlier year may be better.

 

I have had an increment during my last year. How will this affect my final pensionable pay?

If your pay changed during a referencing period your final pensionable pay will be a composite figure. An example of this can be found below:

Hospital consultant retiring on 31 December 2013

 01/01/13 to 31/03/13 =  3/12 x £95,000 =  £23,750

 01/04/13 to 31/12/13 =  9/12 x £97,000 =  £72,750  +

 Total final pensionable pay     =   £96,500

It is not possible to receive the full benefit of any particular annual pay increase unless you complete a full 12 months at the new salary level.

 

How are my pension benefits calculated if a previous years’ pensionable pay is highest?

If the second or third last year of service is the best for final pensionable pay, the pension benefits will be increased in line with the Pensions (Increase) Act 1971 to reflect that a previous years pay has been used.

Please refer to the Increases to pensions FAQs for information on how these increases are applied.

 

I have received a backdated increment or award. How will this affect my final pensionable pay?

For the purposes of assessing your final pensionable pay any backdated pay will be apportioned to the years to which they relate and not in which they were paid.

For example, if you receive a lump sum of £30,000 during your final year before retirement but the payment relates to arrears of pay spread over the three years leading up to retirement, then £10,000 will be apportioned to each year of pensionable pay during the referencing period. You will not benefit from a £30,000 pay increase during your final year.

When testing your pension growth for the purposes of the Annual Allowance, HMRC advises that backdated pay is credited in full in the year it is paid. However, if the arrears partially or wholly relate to earnings in earlier years we suggest that you ask your employer to inform NHS Pensions of your earnings in each year, had you been paid properly, which should ensure that the back payment does not get treated solely as relating to the year it was received.

 

What if I have more than one job?

If you hold more than one post, your pensionable pay is calculated with reference to each employment separately. In the calculation of your benefits, the number of hours worked in each employment is taken into consideration.

An example of this is as follows:

Employment 1  Employment 2
Programmed activities:  6/10   2/10
Pensionable pay*:   £79,000  £ 95,000

Total number of PAs per week: 8
Salary employment 1: £ 79,000 X 6/8  = £ 59,250
Salary employment 2: £ 95,000 X 2/8  = £ 23,750

Final pensionable pay     = £83,000

*Whole-time equivalent

 

What if I have not worked for part of the 3 years immediately prior to retirement?

If you are out of NHS employment for any reason during the last three years immediately preceding your retirement, the referencing period will be extended to include 3 full years of 365 days of pensionable pay. This also happens if you are on nil pay due to sickness.

For example, if you had retired on 31 December 2012, but were been on nil sick pay from 1 January 2011 to 1 June 2011, rather than looking back at the period starting 31 December 2009, the pensions agency will look back at the period starting 30 June 2009.

 

Does reduced sick pay or nil pay affect my final pensionable pay?

If you are on reduced pay on account of sickness this will not affect your final pensionable pay which is always based on notional whole-time equivalent pensionable earnings.

If you are on nil pay on account of sickness the referencing period will be extended to ignore periods where you were in receipt of nil pay. NHS Pensions sometimes refer to these days as disallowed days. Please see above.

 

I have stepped down into a lower paid job. Will this affect my final pensionable pay?

Yes, this will affect your final pensionable pay if you are to retire more than 2 years after the date you stepped down. However, if you are over age 50, and have reduced your pensionable pay and responsibilities by at least 10% you can apply for voluntary protection of pay. This means that the pension accrued up to the point of the step down will be based on the higher pay.

Please see the Voluntary protection of pay FAQs.

If you have transitioned to the 2015 scheme you are still able to apply for voluntary protection of pay (in relation to your accrued 1995 section benefits) so long as the facilities criteria are met.

 

I have reduced my hours in the lead up to my retirement. How will this affect my final pensionable pay?

Providing that you have remained in the same role and simply reduced your hours this will not affect your final pensionable pay, which is always based on notional whole-time equivalent earnings.

 

Which elements of my pay are pensionable?

Generally speaking, income is treated as pensionable if it is regular, likely to continue and relates to normal duties.

Pensionable income currently includes:

  • Basic salary
  • Distinction awards
  • Discretionary points
  • Intensity payments or on call supplements
  • Clinical excellence awards (Their pensionable position may alter prospectively further to the consultant contract negotiations. Pay protection may be applied for should this payment cease to be pensionable in future.)
  • Availability supplements
  • High-cost living area allowance
  • Additional income from clinical or medical director posts (if included within a whole-time contract)
  • For junior doctors*, basic pay up to 40 hours per week (i.e. whole-time). If you are working for less hours per week additional hours worked must be treated as pensionable up to 40 hours (whole-time)
  • Chief officer supplements for doctors in public health medicine
  • Domiciliary visit fees. Pension resulting from this is calculated separately using unscaled (calendar) service as pensionable service.

Income is likely to be non-pensionable if it is irregular, unlikely to continue and relates to work outside normal hours.

*For those subject to the 2016 Junior doctors contract the following is pensionable:

  • All hours worked up to 40 hours per week on average and paid at the basic pay rate
  • London weighting
  • Pay protection amounts as described in Schedule 2 paragraphs 46-50

More information on the contract can be found in the Junior Doctor handbook.

Non-pensionable income includes:

  • Private income
  • Banding supplements for junior doctors
  • Sessions/programmed activities beyond whole-time or maximum part-time

Honorary appointments are non-pensionable. However, if you concurrently hold a pensionable employment in the NHS, any distinction award attached to the honorary appointment can be pensionable.

Income from locum work is pensionable, provided you are contracted to work directly for an NHS employer. Income from locum work carried out via agencies is not pensionable.

Income paid at an enhanced rate may be pensioned only at the rate deemed to be standard for the post (as determined by the employer and NHS pensions).