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
Updated: Thursday 16 January 2020
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).

This is the amount of additional pension being purchased and not the cost of the purchase.

For more information visit the NHS pensions website.

 

Am I eligible to buy additional pension?

Yes, provided you are:

  • a contributing member; and 
  • in good health and not absent from work for any reason; and
  • have not yet reached age 60 or 65 (1995 section), 65 (2008 section) or your state pension age (2015 scheme).

 If you also have an added year’s contract this will not restrict any additional pension purchase you may wish to make.

Your employer can purchase additional pension for you, but by lump sum only. 

 

How much does additional pension cost?

The cost 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 dependants. 

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

 

How to apply

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 forms ABPRE and PAPB.
  • 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

 

Payment

You can pay for additional pension 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
  • regular instalment from your salary. You must choose a period of between one and 20 years, ending at your normal pension age (60, 65 or your state pension age)
  • instalment purchases are subject to review by the scheme actuary. Should a review result in an increase to the cost of the additional pension you will have the opportunity to terminate your contract.

 

Your dependant’s benefits

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

If you purchase additional pension including dependant’s benefits this provides for a spouse/partner pension equal to 3/8ths of your additional pension and children’s benefits equal to 6/8ths of your additional pension.

 

Your lump sum

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 full guidance on tax free lump sums.

 

Tax

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

Buying additional pension contributes towards your lifetime and annual allowance

 

Early retirement

The additional pension will be pro-rated (if you paid in installments) to reflect the amount actually purchased and then actuarially reduced if you take voluntary early retirement.

Please refer to our guidance on voluntary early retirement for information on the application of the actuarial reduction factors.

If you take draw down from the 2008 section and 2015 scheme, you can either take the entire additional pension now, or leave it all until your final retirement.

 

Ill health retirement

If you retire on health grounds within one year after the date that the election to buy the additional pension was accepted, you will receive a refund of the contributions paid. You will not be credited with any additional pension in this instance.

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

 

Death before retirement

  • If you pay by regular instalment or lump sum and then die within one year, your dependants will receive a refund of the contributions paid. Neither you nor your dependants will be credited with any additional pension.
  • If you die after one year, the full dependant’s additional pension will come into payment immediately, even if you were paying by regular instalment and had not completed the purchase.
  • If you have personal cover only and then die within one year, your estate will receive a refund of the contributions paid.
  • If you have personal cover only and then die after one year, nothing is payable. No refund or benefits are payable. 

 

Inflation

The additional pension purchased is increased in line with monthly increases in the rate of inflation. This is both before the additional pension comes into payment and also whilst it is being paid. 

 

Mental health officer status and retiring early

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.

 

Moving to the 2015 pension scheme

If you have already bought or are buying additional pension by payment of regular additional contributions and you move to the 2015 scheme, you can continue to make the additional contributions up to the chosen contract end date or up to your last day in the 2015 scheme if earlier.

If the additional pension is in the 1995 section only you will be able to claim the value of the additional pension benefits from the payable date in the contract. This is without the need to claim all your 1995 section benefits and without the need to formally retire, so no 24 hour break is needed. You will also be able to continue to build up benefits in the 2015 scheme.

If the additional pension is in the 2008 section you will only be able to access the additional pension element when you claim your 2008 section benefits.

 If you have additional pension in the 1995/2008 section, you can purchase up to £6,500 of additional pension in the 2015 scheme on top.  

 

Cancelling your additional pension purchase

You can stop your contributions by notifying your employer in writing. The cancellation will take effect from the first pay period after the notification of cancellation is received.