Additional pension purchase

Guidance for doctors on additional NHS pension, what it costs, what the payment options are and how it is affected by leave or absence and other issues.

Location: UK
Audience: All doctors
Last reviewed: 29 October 2021
Piggybank illustration

You can purchase additional annual pension in units of £250 up to a maximum of £5,000 per annum (1995/2008 section) or £6,500 (2015 scheme members).

The amount above is the value of additional annual pension payable at retirement and not the cost of the purchase. The cost of the purchase will be based on actuarial as well as other factors.

 

Eligibility

You are eligible to buy additional pension if you are:

  • a contributing member
  • in good health and not absent from work for any reason
  • have not yet reached your chosen payable date (ages 60 or 65 for 1995 section members) or normal pension age (age 65 for 2008 section members and state pension age for 2015 scheme members).
How do I apply?

There is an additional pension calculator on the NHS pensions website.

Using the calculator you can work out the cost of purchase by regular payments or lump sum.

  • Complete form AP1 if you do not have access to the calculator.
  • If you are working in Scotland complete form APQUOT.
  • If you are working in Northern Ireland complete forms AP1 and AP2, if a member of the 1995 or 2008 schemes.
  • If a member of the 2015 scheme complete form AP2-2015
I have added years and am likely to have maximum service

You can still buy additional pension - your added years contract will not restrict any additional pension purchase you may wish to make.

I have mental health officer status

You can’t buy additional pension to age 55. Whilst you may be entitled to retire on an unreduced pension from age 55 you can only take an additional pension contract to age 60 or 65.

If you choose to retire prior to your contact end date your additional pension will be actuarially reduced.

Paying for additional pension

How much does it cost?

The cost varies and is determined by the following factors:

  • your age at your last birthday
  • your gender
  • the amount of additional pension being purchased
  • the end date chosen for the contract (either age 60, 65 or your state pension age)
  • whether the cost is being met by a single lump sum payment or by regular contributions
  • whether you have chosen to purchase personal benefits only or to also provide benefits for dependents.

There is an additional pension calculator on the NHS pensions website, which will illustrate how much additional pension will cost.

What payment options are there?

You have the choice of paying for the additional pension by either lump sum, or by regular instalment from your salary or a combination of both.

If paying by regular instalment, you must choose a period of between one and 20 years, ending at your normal pension age (or age 65 for 1995 section members).

Instalment purchase costs are subject to review by the scheme actuary. These reviews take place every four years. Should the review result in an increase to the cost of the additional pension, you will have the opportunity to terminate your contract.

How are contributions collected?

When paying in regular instalments, they are taken from your salary through PAYE in the same way as your main scheme pension contributions.

For GPs,, the contributions are deducted in the same way as the main scheme contributions. GP locums will pay the additional contributions on locum forms A and B.

When paying by lump sum, the pensions agency will invoice your employer for the full amount due and you need to pay this by cheque within 30 days and claim tax relief via your self-assessment tax return.

Can I take a break from paying?

No. It is not possible to take a break or change the rate of contributions from what was agreed in the additional pension contract. That is, unless the contribution rates are changed by the scheme actuary.

If you have a break in service from NHS employment, then contributions will cease for this period. If you return within 12 months contributions can start again.

If there is a break in service of more than 12 months, then the same contract cannot be continued, but it might be possible to take out a new contract at recalculated costs.

Can my employer purchase additional pension on my behalf?

Yes. Your employer can purchase additional pension, but by lump sum only. The same restrictions on the ability to purchase continue to apply (you cannot be absent for any reason and have to still be in pensionable service).

Additionally, if such a purchase is made on your behalf and you retire on health grounds within 12 months of the purchase the benefit will not be paid and the cost will be refunded to your employer.

Pension growth

Can additional pension increase my dependents’ benefits?

Yes. The additional pension benefit can increase either your pension or can also provide increased dependents' benefits. You are not able to buy additional pension which will solely improve dependents’ benefits.

If you purchase additional pension including dependents' benefits this provides for a spouse or partner pension equal to 37.5% of your additional pension. For child dependent benefits, 75% of the additional pension purchase is the starting point from which to assess the appropriate amount payable.

For example, £250 of additional pension is purchased. The spouse or partner would receive £93.75 as an additional pension if benefits become payable.

For a child, the appropriate percent (25% for one child where an adult dependant pension is payable or 33% for one child where no adult dependant pension is payable) is based on £187.50 (75% of the additional pension).

Will it increase my lump sum?

No. Additional pension will only increase the annual pension and will not affect any automatic or mandatory lump sum benefits payable from the scheme.

However, the additional pension will be taken into account when calculating the pension commutation to arrive at the maximum 25% lump sum payable from the scheme.

See our guidance on tax free lump sums for further information.

Does additional pension increase in line with inflation?

If purchased in the 1995/2008 sections the additional pension purchased is increased in line with monthly increases in the rate of inflation. That is before the additional pension comes into payment and also whilst it is being paid.

If inflation is negative, additional pension cannot reduce.

If the application to buy additional pension was made:

  • on or before 31 March 2011 - it will attract pre-payment increases in line with the RPI (retail prices index and in-payment increases in line with the CPI (consumer prices index)
  • on or after 1 April 2011 - both the pre-payment and the in-payment increases will be in line with the CPI.
  • in the 2015 scheme - the additional pension is increased in line with Treasury orders before the additional pension comes into payment. If the Treasury order is negative the benefit can be reduced. Once the benefit is in payment it increases in line with CPI and if inflation is negative the value of the payment cannot be red.

Tax

Does the contribution attract tax relief?

Yes. All pension contributions attract tax relief. If paying by regular instalments tax relief is applied through PAYE. If paying by lump sum, you will have to complete a self-assessment tax return to claim tax relief.

Will my pension growth count for the purposes of the annual allowance?

Yes. The annual allowance is the maximum tax-privileged amount of growth/contributions you can have in all your pension arrangements (excluding the state pensions) in a tax year.

See our guidance on the annual allowance for further information.

Leaving the pension scheme

Voluntary early retirement

If you are purchasing additional pension by regular instalment and retirement takes place before the contract end date, the benefits will be pro-rated to reflect the amount actually purchased and then actuarially reduced.

If you are purchasing additional pension by lump sum and retirement takes place before the agreed contract end date, the benefits will be actuarially reduced.

See our guidance on voluntary early retirement for information on the application of the actuarial reduction factors.

Retirement within 12 months of your contract starting

If you pay via regular instalments and retirement takes place within 12 months of commencing the purchase, then all contributions will be refunded.

If you pay via lump sum and retirement takes place within 12 months of making the payment, then the purchase is still included in the benefits payable.

The benefits will also be actuarially reduced when retirement takes place before the agreed contract end date.

Ill health retirement

If you retire on health grounds within one year of the election to buy the additional pension being accepted, you will receive a refund of the contributions paid. You will not be credited with any additional pension.

If you retire on health grounds one year or more after the election to buy the additional pension being accepted, the full purchase becomes payable.

Death and retirement

Including dependents’ benefits

If you die within one year of the election to buy the additional pension being accepted, your dependents will receive a refund of the contributions paid. Neither you nor your dependents will be credited with any additional pension.

If you die after one year of the date that the election to buy additional pension was accepted, the full dependents additional pension will come into payment immediately. This is the case even if you were paying by regular instalment and had not completed the purchase.

Personal cover only

If you die within one year of the date that the election to buy the additional pension being accepted, your estate will receive a refund of the contributions paid.

If you die more than one year after the date that the election to buy additional pension was accepted, nothing is payable. No refund or benefits are payable.

Death before retirement

If you die after retirement having purchased additional pension with dependants’ benefits, the dependants’ additional pension will come into payment immediately.

Redundancy

If you are made redundant then you will be credited with the amount of additional pension actually purchased at the date of leaving but this will be actuarially reduced.

The reduction will apply irrespective of whether you are purchasing additional pension by lump sum or regular instalments. It will apply regardless of whether you have used your redundancy payment to fund for unreduced main scheme benefits.

Partial retirement

If you are taking partial retirement (draw down from the 2008 or 2015 schemes), you cannot do this with your additional pension. Your choices are to take the entire additional pension at the time of the partial retirement or, to leave it all until your final retirement.

If you are retiring before your normal pension age and choose to take the entire additional pension early, this benefit will be reduced as detailed above.