Recent changes have resulted in the Universities Superannuation Scheme (USS) and the NHS Pension Schemes no longer being as comparable as they once were.
This guidance is for doctors who are considering the options available when commencing a university appointment.
I am taking up an academic post. What are my options?
If you stop working for the NHS and take up an academic post with a university you may be able to continue to pay into the NHS Pension Scheme via a 'direction' arrangement. This facility enables you to continue to contribute towards your NHS pension despite no longer being employed by the NHS. Alternatively you may choose to join the Universities Superannuation Scheme (USS).
If I join the USS what are the options for my NHS pension?
Your options are:
Refund of your contributions
If you were previously contributing to the 1995 or 2008 sections and you have less than two calendar years of membership you may wish to claim a refund of pension contributions. However if you intend to return to the NHS within 12 months you may prefer to retain this service.
If you were previously contributing to the 2015 scheme and you have less than two calendar years of membership you may wish to claim a refund. However if you intend to return to the NHS within five years of leaving you may prefer retain this service.
Any refund of contributions would be reduced by:
- a tax payment of 20% for the first £20,000 refunded and 50% on any excess and
- an amount equal to the discount on national insurance contributions that you received whilst a member of the scheme. This payment will re-instate your entitlement to the state second pension (S2P) in respect of the period of service being refunded(only applicable in respect of service up to 5 April 2016)
With the introduction of the single State Pension from 6 April 2016 there will no longer be the facility to contract out. This means that the reduced National Insurance contribution rate will no longer apply and employees will see an increase of 1.4 % to their National Insurance contributions.
Defer your NHS pension
If you have more than two calendar years of membership you will qualify for a deferred pension from the NHS Pension Scheme. These benefits are calculated with reference to service and pay up to the date you leave the scheme and then increased annually in line with the Pensions (Increase) Act. This act currently links increases to benefits to changes in the Consumer Prices Index (CPI).
These benefits are payable in full from your normal pension but can be taken early from your minimum pension age with an actuarial reduction.
Transfer your NHS pension into the USS
This option is only available if you join the USS before 1 April 2016 and effect the transfer within two years of joining or if you leave the NHS Pension Scheme with less than two calendar years of membership.
Until 31 March 2016 both the USS and the NHS Pension Scheme were members of the Public Sector Transfer Club (participating schemes are known as 'club schemes').
USS ceased membership of the club from 1 April 2016 as the scheme benefits were no longer comparable. However, if you joined USS prior to 1 April 2016 and are seeking to transfer final salary benefits from a public sector pension scheme into the USS, a club transfer is only possible if effected within two years of date of joining or re-joining. The transferred in service will provide final salary benefits calculated with reference to pay at 31 March 2016 then subject to pensions increases.
All other transfers will be calculated on a non-club basis and will provide benefits in the USS Investment Builder scheme only.
What is a 'direction' arrangement?
This is a facility which enables you, to remain in the NHS Pension Scheme if you are appointed to a medical school in England, Wales and Northern Ireland, provided that you have contributed to the NHS Pension Scheme at some time during the 12 months prior to the university appointment starting. The option of remaining in the NHS Pension Scheme should be detailed in your contract and you should query this if it is not.
'Direction' arrangements are available if you are working in a medical school in Scotland. The arrangements in Scotland apply to doctors who are purchasing added years or the unreduced lump sum in the 1995 section of the NHS Pension Scheme and who take up a position in a medical school within three months of leaving the NHS. It also applies to lecturers and clinical researchers whose contract, which must begin within 12 months of leaving NHS employment, is for no more than eight years.
How do I apply to remain in the NHS Pension Scheme if my new employer has direction status?
You need to apply in writing to remain in the NHS Pension Scheme within three months of starting your new job. Membership will not be granted automatically.
Because there are different NHS Pension Schemes for Scotland, Northern Ireland and England and Wales, you should apply to the administrator of the pension scheme in the country in which the university appointment is held. For example if you are moving from an NHS post in England to a university appointment in Scotland you should apply to the Scottish Public Pensions Agency in order to remain in the NHS Superannuation Scheme (Scotland). You will then begin to accrue benefits in the NHS Superannuation Scheme (Scotland) and you may wish to transfer your benefits from the NHS Pension Scheme in England and Wales to the Scottish scheme.
Direction arrangements are only available to those subject to a contract of employment. If you are engaged on a contract for services basis you will not qualify for direction.
How do I apply to remain in the NHS Pension Scheme if my new employer does not have 'direction' status?
It is possible for you to apply for 'direction' status as an individual, or for your new employer to apply to become an NHS employer for pension purposes.
Further information on this is available on the relevant pension agencies web sites.
If I join the USS what benefits are available?
The USS final salary/Career Revalued Benefits (CRB) section closed to all members on the 31 March 2016.
If you joined USS prior to 1 April 2016 your pension scheme membership will be deferred, based on service and pay to 31 March 2016. These benefits are increased annually in line with pensions increase.
Read further information on benefits accrued prior to 1 April 2016 on the USS website.
From 1 April 2016 a new USS scheme applicable to all USS members was introduced called the USS Retirement Income Builder. This scheme is a Career Revalued Benefits (CRB) scheme.
USS Retirement Income Builder benefits are based on your full pensionable salary up to 30 September 2016. From 1 October 2016 a salary threshold of £55,000 was introduced. This threshold is increased annually. In 2019/20 the salary threshold is £58,589.70. Contributions in respect of salary above the threshold are invested in the USS Investment Builder (a defined contribution scheme similar to a personal pension). So your retirement savings within USS from 1 October 2016 will be made up of two parts:
- The USS Retirement Income Builder (CRB benefits) in respect of your salary up to the threshold; plus
- The USS Investment Builder (defined contribution) in respect of your salary over the threshold.
How is my USS pension calculated?
In the USS Retirement Income Builder you will receive an annual pension based on 1/75th of pensionable earnings up to the income threshold plus a lump sum of 3/75th.
In the USS Investment Builder the level of benefits available will be determined by the contributions paid into your fund and the investment growth of your fund.
Read information on your investment options on the USS website
How does the USS Retirement Income Builder scheme work?
Each year, on 31 March, 1/75th of your actual pensionable earnings up to income threshold is put towards your pension. The accrued pension will be increased each year in line with official pensions increase. The USS will match increases in official pensions for the first 5%. If official pensions increase by more than 5%, then USS will pay half of the difference up to a maximum increase of 10%.
If you are working part time your actual pensionable salary is tested against the income threshold.
Will the income threshold increase?
The income threshold will increase annually in line with official pensions increase.
How much will I pay towards USS membership?
Your standard contribution is 8.8% of pensionable earnings. You must contribute 8.8% on all your pensionable income but if your pensionable income is above the income threshold contributions relating to pay above the threshold go towards the USS Investment Builder. The contribution rate will increase to 10.4% from 1 October 2019.
You can choose to contribute more than 8.8% (10.4% from 1 October 2019). All additional contributions are made towards the USS Investment Builder.
How much does my employer pay towards USS membership?
The current employer standard contribution rate is 19.50% of total pensionable earnings. However in respect of earnings above the income threshold 12% (of the 19.50% employer contribution) will be paid to your USS Investment Builder account. The employer contribution rate will increase to 22.5% from 1 October 2019.
If my earnings are above the income threshold can I opt out of the USS Investment Builder only?
While you cannot directly opt out of the USS Investment Builder and remain in the USS Retirement Income Builder you can apply for an individual Voluntary Salary Cap to restrict your pensionable salary.
If you apply for a Voluntary Salary Cap you are required to give 28 days notice and your pay will restricted from the following 1 April. Your personal capped pensionable salary cannot be less than the income threshold. Once an election under this schedule is in effect it cannot be varied or revoked until the following 31 March.
What options are available if I leave the USS prior to retirement?
If you have less than two years' membership service in the USS you can take a refund of contributions. You will not be compelled to do so and can retain a deferred benefit in the scheme instead.
If you have less than 3 months contributions in the USS Investment Builder, your refund will be based on the amount you have paid in.
If you have paid more than three months' contributions in the USS Investment Builder you will receive the fund value (i.e. including any investment returns earned on those contributions).
If you have more than two years' membership, or if you have transferred benefits into the scheme from a personal pension scheme or a retirement annuity contract, you cannot have a refund of contributions and the accrued benefits built up in the scheme will be deferred unless you choose to transfer them out or retire.
How is my deferred USS pension increased?
Benefits deferred in the USS are increased in the same way as benefits deferred in the NHS Pension Scheme.
- if you were a member of the USS final salary section only, your service prior to 1 October 2011 will receive the full CPI increase. Thereafter, the proportion of your pension related to service accrued after 1 October 2011 will be increased up to a maximum of 5%. Where the increase is greater than 5%, one half of the excess above 5% will be taken into account but with an overall cap on increases of 10%.
- if you were in the USS Career Averaged Revalued Earnings section, each year's accrued pension will be increased up to a maximum of 5%. Where the increase is greater than 5%, one half of the excess above 5% will be taken into account but with an overall cap on increases of 10%.
- any pension (and cash) benefits you have built up in the USS Retirement Income Builder will be increased in line with USS's standard pension increases.
What is my normal pension age (NPA)?
The normal pension age in the USS is currently 65. However this is linked to increases in the State Pension Age (SPA).
Can I retire before NPA?
Voluntary early retirement is available from age 55. The benefits payable from the USS Retirement Income Builder will be reduced by 4% approximately for each year that they are being paid early.
Funds in the USS Investment Builder will remain invested until you retire. There is no early retirement reduction factors in relation to this.
It may be possible to access benefits from age 50 if you are redundant.
Read information on early retirement on the USS website
Is late retirement available?
If you are contributing to the USS Retirement Income Builder immediately before the NPA late retirement factors will apply to benefits earned up to NPA.
Funds in the USS Investment Builder will remain invested until you retire. There are no late retirement factors in relation to this.
Read information on late retirement on the USS website
What flexible retirement options are there?
Flexible retirement is available from age 55.
In relation to the USS Retirement Income Builder you can access between 20% and 80% of accrued benefits once you have reduced your hours and salary by at least 20%. You can access benefits on two occasions in this manner.
In relation to the USS Investment Builder you are required to use you entire USS Investment Builder fund to provide additional benefits. You can continue to contribute to the USS Investment Builder in respect of your ongoing employment.
Read information on flexible retirement on the USS website
What are the options for ill health retirement?
There are two tiers of ill health retirement.
You will qualify for partial retirement if you are unable in the long-term to perform your own job or any similar job, but may be able to undertake some other level of employment, whether or not such other employment is available. The 'long term' is defined as the greater of:
- Five years, or
- The period up to the average age at which members of USS retire excluding ill health retirements.
The benefits from the USS Retirement Income Builder will be calculated using your full pensionable salary ignoring the income threshold. As a result of this any funds in the USS Investment Builder will be credited to the USS Retirement Income Scheme in lieu. Any contributions paid to the USS Investment Builder as a result of voluntary contributions will be returned.
To qualify for a total incapacity pension, you must be deemed in the long-term to be unable to discharge the duties of your own job or any other office, post or employment although it may be acceptable to perform some very limited duties e.g. marking examination papers or proof-reading and earn a negligible amount. The 'long term' is defined as the greater of:
- Five years, or
- The period up to the average age at which members of USS retire excluding ill health retirements.
You may not qualify for a total incapacity pension if you have fewer than five years active membership and retire as a result of a medical condition known to you, or to your employer, when you joined the scheme.
The benefits from the USS Retirement Income Builder will be calculated using your full pensionable salary ignoring the income threshold and will be enhanced to the lesser of working to age 65 or until you would have accrued 40 years of service. As a result of this any funds in the USS Investment Builder will be credited to the USS Retirement Income Scheme in lieu. Any contributions paid to the USS Investment Builder as a result of voluntary contributions will be returned.
Read information on ill health retirement on the USS website
What happens if I die in service?
A life assurance lump sum equivalent to three times your annual pensionable salary (ignoring the income threshold) is payable.
Your spouse, civil partner or partner will qualify for a pension based on 50% of the pension you would have received if you had been able to continue in the USS Retirement Income Builder until age 65.
The benefits will be calculated using your full pensionable salary ignoring the income threshold and as a result of this any funds in the USS Investment Builder in respect of salary above the income threshold will be credited to the USS Retirement Income Scheme in lieu. Any contributions paid to the USS Investment Builder as a result of voluntary contribution will be returned.
Read information on death benefit on the USS website