If you are an active member of the NHS pension scheme
If you are contributing to the 2015 scheme and have not had a break in pensionable service of 5 years’ or more then your 2015 accrual is subject to ‘active’ revaluation.
If you are actively contributing to the 2015 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%.
In addition 1995/ 2008 section benefits will continue to be final salary linked where there has not been a break in pensionable service of 5 years or more. Final salary linking means that benefits will retain their value by being increased in line with current rates of pay (officers)/recently dynamised income (GPs).
Dynamised income is increased in line with pensions increases plus 1.5%. This means that if CPI (consumer price inflation) growth is nil or negative the dynamising factor applied to increase GP income will be 1.5%.
When inflation is higher than pay increases, officer benefits may not be greater by being linked to current salary.
If you are buying additional pension these benefits are increased annually in line with pensions increases.
If you left NHS employment
If you opt out of the pension scheme or leave pensionable NHS employment before the scheme normal pension age (in relation to the1995 or 2008 section) or state pension age (in relation to the 2015 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.
If you have been opted out of the scheme for 5 years or more then you no longer have active revaluation of the 2015 scheme accrual earned before the break and final salary linking for 1995/2008 benefits cease and will be based on pay/dynamising leading up to the break.
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.
From 1 April 2011 the increases have been linked to changes in the CPI (consumer prices index) 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.
Everyone is due an annual revaluation of pensions in payment irrespective of the amount of Lifetime Allowance which may have been used when the benefits were originally crystallised.
NHSBSA who administer the NHS pension in England and Wales continue to be very delayed in applying annual increases to member benefits and some members may not have had increases for several years. In this situation we recommend you contact NHSBSA directly to ask for your annual increases to be applied.
Should you not receive a timely and satisfactory reply please contact the BMA Pensions Department.
When an increase will be applied
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 relation to benefits accrued in the 1995 or 2008 section, the date is the end of the relevant pay period which forms your total pensionable pay 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 benefits in the 1995/2008 section and in the 2015 scheme you may have a different deemed date for each. In the first year of you being a deferred member or of your retirement the amount of pensions increase applied may be based on different percentage but after this the increases will be the same.
Are you 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.
- 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.
- 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.
- 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.
- If you have only been in receipt of your pension for a few months when the first increase is implemented you will get a portion of it based on how many months you have been in receipt of your pension. For example, if you have been in receipt of your pension for 6 months then you will receive ½ of the first increase. A part month of 16 days or more counts as a full month. A pension which begins 15 days or less before the April increase will only receive an increment in the following year, and the years thereafter.
Retiring before age 55
If you have retired before age 55 on the grounds of redundancy, efficiency or voluntary early retirement (1995 section accrual only) you will not receive any increases until you reach age 55. At that point your pension will be increased to the level it would have been if increases had been applied from retirement.
If you retire early on health grounds you will receive pensions increases even if this is before age 55 and will not need to wait till 55 to benefit from annual revaluation.
Additional pension purchase
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 took out an additional pension contract prior to 1 April 2011 then in service revaluation is linked to RPI and increase to benefits in payment to CPI. If you took out an additional pension contract after 31 March 2011 both in service revaluation and increases applied to the benefits in payment are linked to CPI.
Who pays the increases on my NHS pension?
If your pension includes an element of GMP (guaranteed minimum pension) then the cost of the increases applied to the GMP element of your NHS pension will be shared between the NHS pension scheme and DWP (Department for Work and Pensions).
NHS pensions will meet the full cost of increasing your NHS pension 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 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.
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.
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 yourtotal pensionable pay period was either the previous or earliest year, i..e. where total pensionable pay is not your last years’ pensionable pay
- 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.
An example of a second bite pensions increase would be where a member left the NHS pension scheme on 30 September 2021 and retired on 30 September2022. The lump sum would have been paid on 1 October 2022 and it will have received the proportionate PI increase applicable between 1 October 2021 and April 2022.
However, the lump sum would still be due an increase in respect of the period between the pensions increase day in April 2022 and the retirement date in September 2022. This second bite increase is based on the April 2023 Pensions Increase Review Order and would be payable in April 2023.
Second bite and lifetime allowance
- Where a deferred member receives the pensions increase in the first year following retirement that part of the increase which is for the period from the last pensions increase date up to the retirement date will be tested against the lifetime allowance. Increases relating to the period before retirement will only be liable to an LTA charge where retirement was before 6 April 2023. From that date no LTA charge will apply and the rules relating to the LTA are to be abolished in 2024/25.
- The position is the same where a member is receiving second bite pensions increase due them having a deemed date which is not the day after they opted out, left the pension scheme or retired.
- 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. From 6 April 2023 the LTA charge will not apply but the maximum tax free lump sum is being retained at £268,275 (the Pension Commencement Lump Sum). Lump sums in excess of this will be subject to taxation at your marginal rate of tax.
- 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 lifetime allowance is used. From 6 April 2023 the LTA charge will not apply but the maximum tax free lump sum is being retained at £268,275 (the Pension Commencement Lump Sum). Lump sums in excess of this will be subject to taxation at your marginal rate of tax.
- NHSBSA (NHS Business Services Authority), which administrates the scheme in England and Wales, require members who have exceeded 83.3% of their available lifetime allowance to complete a lifetime allowance declaration (LTA1 form) before processing second bite calculations. As any pensions increase applicable before the date of retirement is a benefit crystallisation event, calculations must be undertaken to ensure any charges are correctly applied and benefits are not overpaid.