Pensions

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Inflationary increases FAQs

Answers to your questions about inflation increases to your pension, including how much, how they are applied and by whom and information on GMP and second bite pensions.

I am an active member of the NHS pension scheme. How do inflationary increases affect my pension?
I am a deferred member of the NHS pension scheme. How do inflationary increases affect my pension?
Once i have retired how will my pension be increase?
When will any increase apply?
I have recently retired.  Am I entitled to the full increase next April?
Is my pension always increased immediately following retirement?
Are the increases applied to my added years in the same way?
Are the increases applied to my additional pension in the same way?
Who pays the increases on my NHS pension?
What is GMP?
What is second bite pensions increase?
Will I receive a second bite pensions increase payment?
Will my second bite increase be tested against the Lifetime Allowance?
How does the Pensions (Increase) Act affect the dynamising factor and injury benefit payments?
How does the Pensions (Increase) Act affect Permanent Injury Benefit claims?
How does the Pensions (Increase) Act affect abatement?

 

I am an active member of the NHS pension scheme. How do inflationary increases affect my pension?

Whilst you are actively contributing to the 1995/2008 section benefits keep up with inflation by being based on current rates of pay/recently dynamised income.  Dynamised income is increased in line with Pensions Increases plus 1.5%. This means that if CPI growth is nil or negative the dynamising factor applied to increase GP income will be 1.5%.

Whilst you are actively contributing to the 2015 CARE scheme benefits keep up with inflation by being revalued each year in line with Treasury Orders.   Active revalued income is increased in line with Treasury Orders plus 1.5%.  This means that if CPI growth is nil or negative the revaluation factor may be less than 1.5%. 

If you are buying Additional Pension these benefits are increased annually in line with pensions increase. 

 

I am a deferred member of the NHS pension scheme. How do inflationary increases affect my pension?

If you opt out of the pension scheme or leave pensionable NHS employment before the scheme normal pension age (1995/2008 section) or State Pension Age (2015 CARE scheme) then your pension is deferred.  These benefits are no longer linked to current pay and service but are protected against inflation by being increased each year in line with the Pensions (Increase) Act 1971.  

When you draw your pension you will receive your deferred pension plus the inflationary increases between the date that you left the scheme and the date that you retire.

 

Once i have retired how will my pension be increased?

The increase for all NHS pensions in payment (1995/2008/2015) is calculated in line with the Pensions (Increase) Act 1971.

Up until 1 April 2011 increases were linked to changes in the Retail Prices Index (RPI) from September to September with the increase being applied on the first Monday in April (which falls on or after 6 April) of the following year.

From 1 April 2011 the increases have been linked to changes in the Consumer Prices Index (CPI) from September to September with the increase being applied on the first Monday in April (which falls on or after 6 April) of the following year.

CPI is generally around 0.5% - 1% lower than RPI.

If CPI growth is nil or negative your pension will remain at its current level and receive no increase.

 

When will any increase apply?

Your pensions increase date, known as your deemed date, is based on your last day of service. If you are a secondary care doctor in the final salary section of the scheme the date is the end of the relevant pay period which forms your total pensionable pay (TPP) in the 1995 section, or reckonable pay in the 2008 section.   Your pensions increase date will be the day after the end of the relevant pay period. 

If you are a GP the pensions increase date is the day after your last day of service.

If you have transitioned to the 2015 CARE scheme from the 1995/2008 sections and have lost your ‘final salary linking’ (as a result of a break in pensionable service of 5 years or more) then there will be one date applying to your deferred 1995/2008 section benefits (ending on the last day before the break in service of 5 years or more) and one date relating to when you last accrued 2015 CARE benefits.

If you have had a break in 2015 CARE scheme service of 5 years or more this will also mean that your earlier 2015 CARE scheme service will cease to receive active revaluation but will instead be subject to deferred benefit revaluation.  This means that on retirement your service before the break of 5 years or more will be subject to revaluation on a different date to that of your later benefits.   

 

 

I have recently retired.  Am I entitled to the full increase next April?

If your deferred benefits were bought into payment and you left the scheme before the middle of the previous April then you will receive the full increase.

For example, in April 2012 the pensions increase was 5.2%.  If you left the scheme earlier than 27 March 2011 then in April 2012 you would have received the full 5.2% increase.

If you retired from NHS service after the previous pensions increase date and your total pensionable pay in the 1995 section was calculated using a year other than the final year before retirement, you will receive the full increase.

For example, if you retired from the 1995 section on 30 September 2011 and the best of your last three years of pay was between 1 October 2008 and 30 September 2009 then your pensions increase date is 1 October 2009.  On 1 October 2011 you would receive a pension including increases paid up to April 2011.  In April 2012 you would receive the full increase of 5.2%.

If you retired from NHS service after the previous pensions increase date and your total reckonable pay in the 2008 section was calculated using a year other than the final year before retirement, you will receive the full increase.

For example, if you retired from the 2008 section on 30 September 2011 and the average of your best three consecutive years of pay ended on 30 September 2010 then your pensions increase date is 1 October 2010.  On 1 October 2011 you would receive a pension including increases paid up to April 2011.  In April 2012 you would receive the full increase of 5.2%.

If you retired after the previous pensions increase date with immediate benefits and your pay was calculated up to your last day of service then you would receive a partial increase during the first year and the full increase after that.

For example, if you retired on 30 September 2011 and the best of your last three years of pay was in respect of the year from 1 October 2010 to 30 September 2011 then your pensions increase date is 1 October 2011.  In April 2012 you will qualify for a proportion of the full increase due (in this case in respect of the period from October 2011 to April 2012) equivalent to 2.6% (6/12 X 5.2%).  In April 2013 you would qualify for the full increase.

 

Is my pension always increased immediately following retirement?

If you have retired before age 55 on the grounds of redundancy, or voluntary early retirement (1995 section only) you will not receive any increases until you reach age 55 at which point your pension will be increased to the level it would have been had increases been applied from retirement.

 

Are the increases applied to my added years in the same way?

These methods of pension increase also apply in the same way to any added years that you have purchased.

 

Are the increases applied to my additional pension in the same way?

Your additional pension increases from the date of purchase.  It is increased while you are contributing to the scheme, if your benefits are deferred and when your pension comes into payment.

If you started your additional pension contract before 1 April 2011, while you remain in pensionable employment the additional pension is increased in line with RPI and after you retire it will be increased in line with CPI. 

If you started your additional pension contract after 31 March 2011, the additional pension is increased in line with CPI, both while you are contributing to the scheme and when your pension comes into payment.

The same method of increase applies to dependents’ pensions arising from additional pension purchase.

 

Who pays the increases on my NHS pension?

If your pension includes an element of Guaranteed Minimum Pension (GMP) then the cost of paying the increases will be shared between the NHS pension scheme and the Department for Work and Pensions (DWP).

NHS Pensions will meet the full cost of increasing your NHS pension in respect of benefits accrued before 6 April 1978.

The cost of increasing your NHS pension accrued between 6 April 1978 to 5 April 1988 is shared.  NHS Pensions will meet the cost of increasing the non-GMP element of your NHS pension. The DWP will meet the cost of the increases to be applied to the GMP element of your pension which is paid as part of your state pension. 

The cost of increasing your NHS pension accrued between 6 April 1988 to 5 April 1997 is shared.  NHS Pensions will meet the cost of increasing the non-GMP element of your NHS pension plus the first 3% of any increase to be applied to the GMP element of your pension. The DWP will meet the cost of any pensions increase to be applied to the GMP element of your pension, where the annual increase exceeds 3%, and this part of the increase will be paid as part of your state pension. 

GMP ceased to accrue from 5 April 1997 and NHS Pensions will meet the full cost of increasing your NHS pension accrued from this date.

 

What is GMP?

If you were contributing to the NHS pension scheme between 6 April 1978 and 5 April 1997 you might have been contracted out of the State Earnings Related Pensions Scheme (SERPS).  SERPS is the earnings related tier of the state pension which then became known as the State Second Pension (S2P). 

Contracting out was a requirement for all members of the NHS pension scheme other than self employed contractors. 

If you were contracted out of SERPS you were entitled to pay a lower rate of national insurance contributions.

As a result of contracting out, the NHS pension scheme guaranteed that at State pension age the benefits from the scheme will be at least as much as the additional pension that would have received from the State had you remained within SERPS and not been contracted out. This is known as the GMP element of your pension. 

Contracting out ceased for all members of the NHS Pension Scheme (1995/2008 sections and 2015 CARE scheme) from 6 April 2016 when the Single State Pension was introduced.

 

What is second bite pensions increase?

This is an additional amount of pensions increase that may be paid to you in the April following your retirement.  It represents the additional pensions increase due between the date of the last pensions increase award and your date of retirement. 

 

Will I receive a second bite pensions increase payment?

A second bite increase will only apply to you if you have retired in the following circumstances;

  • having been a deferred member, you are now drawing your pension.
  • you were a member of the 1995 section and your TPP period was either the previous or earliest year, i.e. where TPP is not your last years’ pensionable pay (see the TPP FAQs for further information).
  • you were a member of the 2008 section and your reckonable pay period was not the best three year average ending on your last day of service (see the reckonable pay FAQs for further information).

An example of a second bite pensions increase would be where a member left the NHS pension scheme on 30 September 2011 and retired on 30 September 2012. The lump sum would have been paid on 1 October 2012 and it will have received the proportionate PI increase applicable between 1 October 2011 and April 2012.  However, the lump sum would still be due an increase in respect of the period between the pensions increase day in April 2012 and the retirement date in September 2012.  This second bite will be payable in April 2013.   

Second bite also applies to Practitioner members whose benefits require recalculating after they have retired not only on account of the late declaration of self employed GP earnings but also due to the retrospective application of the dynamising factor.

 

Will my second bite increase be tested against the Lifetime Allowance?

Yes.  Where a deferred member receives the full increase in the first year following retirement that part of the increase which is in respect of the period from the last pensions increase date up to the retirement date will be tested against the Lifetime Allowance.  The same will apply to an 1995/2008 member whose TPP/reckonable pay was in respect of an earlier year, not the final year. Additionally if you have already taken the maximum tax free lump sum you may incur a Lifetime Allowance tax charge on any second bite lump sum paid. 

Where a GP member is subject to second bite the benefits are treated as additional benefit crystallisation events and a tax charge is likely to be applied to any lump sum benefits regardless of whether or not the standard/personal LTA is used.

 

 

How does the Pensions (Increase) Act affect the dynamising factor and injury benefit payments?

The index determines the dynamising factor which is used to uplift GP earnings in the 1995/2008 sections of the NHS pension scheme. Since 1 April 2008 the dynamising factor has been calculated as the pensions increase plus 1.5%. Should the CPI growth be nil or negative the base line is set at zero.

 

How does the Pensions (Increase) Act affect Permanent Injury Benefit claims?

The index also determines the increases applied to permanent injury benefit payments.

 

How does the Pensions (Increase) Act affect abatement?

When calculating your earnings margin the Pensions Agency will increase your pre-retirement earnings by pension increase.