Career average revalued earnings (CARE)
The 2015 scheme differs from the 1995 and 2008 sections, which give a final salary pension for officers, in that it provides career average revalued earnings (CARE) benefits for all doctors.
CARE pension schemes differ from final salary in that they take account of pensionable earnings in every year of scheme membership rather than just prior to retirement.
The accrual rate in the 2015 scheme is 1/54 (equivalent to 1.85%), this means that every year a member will accrue 1/54 of their pensionable earnings. The pension earned each year is based on actual pensionable pay earned in that scheme year which is increased annually, up to leaving or retirement, by a method known as active revaluation. The active revaluation rate is the Consumer Prices Index (CPI) plus 1.5%. Where a member leaves the scheme but rejoins with a break of less than 5 years the period before the break continues to be subject to active revaluation. Where a member leaves the scheme but rejoins with a break of greater than 5 years the period before the break is subject to increases applicable to a deferred pension whereas the period after the break will be subject to active revaluation including the additional 1.5%. The final pension payable is calculated by adding together the revalued pensions earned in each year of membership.
There is no automatic lump sum payable but annual pension can be commuted in favour of a lump sum.
Revaluation has moved from taking place on 1 April to 6 April each year, from April 2023 onwards.
CARE in practice
Let's say that you earn £75,000 in pensionable income this year and the CPI rate is 3%.
Your pension would be 1/54 x £75,000 = £1,389 and it would be increased by the revaluation rate (CPI 3% + 1.5%) to £1,452.
Every year the total of the previous years' pension accrual would be increased by the relevant rate for that year.
Increase in normal pension age
Another key aspect of the 2015 scheme is the increase in normal pension age to State Pension Age. The following examples illustrate this.
- Hugo is a 55-year-old GP and a member of the 1995 section.
- He was within 10 years of his normal pension age on 1 April 2012 and was granted full protection and did not have to join the 2015 scheme. However the McCloud case found that the way in which members were transitioned or protected from transitioning to the reformed public sector schemes was age discriminatory. This means that Hugo is now in the 2015 scheme as from 1 April 2022 and will have a choice via the McCloud Remedy on where his accrual from 1 April 2015 to 31 March 2022 is from (the reformed or legacy scheme).
- He can continue accruing benefits and draw his pension and lump sum at age 60 if he wishes. Before 1 April 2023 accessing final salary linked 1995 benefits would mean that further accrual in the 2015 scheme would cease but greater flexibilities are being introduced to retain the older workforce. Reforms introduced from 1 April 2023 mean that those retired from the 1995 section (even with maximum service) can join/continue 2015 scheme accrual and from October 2023 a draw down of 1995 section benefits will be possible enabling members to access benefits without having to cease employment (as long as Minimum Pension Age has been reached and pensionable income/commitment has been reduced by 10%).
- If Hugo retires and returns to work in the NHS before 1 April 2023 he will not be able to rejoin the NHS pension scheme. From April 2023 Hugo will be able to join the 2015 scheme.
- Kellie is a 43-year-old consultant who opted to move to the 2008 section under choice two before joining the 2015 scheme.
- As she was more than 13.5 years from her normal pension age on 1 April 2012 Kellie would not have received protection and so decided to transfer her accrued benefits from the 1995 section to 2008 under choice two.
- She joined the 2015 scheme and began to build her benefits. The McCloud Remedy will revert her to the 2008 legacy scheme for the remedy period of 1 April 2015 to 31 March 2022. At retirement she will be provided with comparison estimates to be able to decide whether to take the benefits during that period from the legacy or reformed scheme.
- Kellie has 20 years of final salary pension in the 2008 section and this will be linked to her reckonable salary at retirement, which means that she will benefit from any future pay increases.
- She will be able to draw her 2008 section benefits at age 65 and either draw her 2015 scheme benefits at the same time (they would be subject to an actuarial reduction) or leave them in the scheme until her state pension age of 67.
- If Kellie draws her benefits from the 2008 section and returns to work then, providing she has taken the appropriate break in service, she would be able to build up further benefits in the 2015 scheme. Kellie can also choose to draw down her 2008 benefits and 2015 scheme benefits and continue working without break so long as she has reached Minimum Pension Age and has a reduction in pensionable income/commitment of 10%. Whatever proportion of draw down is chosen needs to apply to both her 2008 and 2015 scheme accrual.
- Moussa is a 37-year-old staff grade doctor and was a member of the 1995 section before joining the 2015 scheme.
- Moussa was more than 13.5 years from his normal pension age in 2012 and therefore joined the 2015 scheme. The McCloud Remedy will revert him to the 1995 legacy scheme for the remedy period of 1 April 2015 to 31 March 2022. At retirement he will be provided with comparison estimates to be able to decide whether to take the benefits during that period from the legacy or reformed scheme.
- Moussa accrued 10 years of final salary pension in the 1995 section. This will be linked to his final salary at retirement, which means that he will benefit from any future pay increases.
- Moussa started to build up benefits in the 2015 scheme under CARE accrual.
- He will be able to draw his protected rights from the 1995 section at age 60 and either draw his 2015 scheme benefits at the same time or leave them in the scheme until his state pension age of 68.
- If Moussa draws his benefits from the 1995 section and returns to work he will not be able to build up further benefits in the 2015 scheme as retirement will be after 1 April 2023.
- If he draws his 2015 section benefits at age 60 (with his 1995 benefits) then the 2015 scheme benefits would be actuarially reduced. Moussa will also have the option to draw down his 1995 section benefits and will not then need a break in service so long as he has attained Minimum Pension Age and reduced his pensionable income/commitment by 10%. Whatever proportion of draw down is chosen needs to apply to both his 1995 and 2015 scheme accrual.
- Beatrice is a 21-year-old medical student who started work after 2015 and immediately joined the 2015 scheme. As Beatrice was not an active scheme member on 1 April 2012 she is not subject to the McCloud Remedy.
- Beatrice will accrue benefits under the CARE method and her state pension age is 68.
- She has a long time until retirement. Her normal pension age is likely to increase during her career if the Government increases the state pension age due to improving mortality rates.