An added years contract is a service based benefit available only in the 1995 section of the scheme. It allows members who could not achieve the maximum scheme membership at their normal pension age to purchase additional membership. This additional membership provides you with additional index-linked pension and tax-free lump sum.
Half-cost added years are available if you took a refund of contributions in respect of any service prior to 6 April 1978, or at any time in respect of contributions made as a self-employed GP.
An added years contract must start on your birthday and end at age 55, 60 or 65.
How much do added years cost?
You will pay a fixed cost that will not change throughout your contract.
The cost is determined by the GAD (Government Actuary Department) and is based on the following factors:
- your age at the start of the contract (your next birthday)
- the end date for the contract (your 55th, 60th or 65th birthday)
- the number of added years you are purchasing.
If you have had a refund of service you may be able to purchase added years at ‘half-cost’.
The actuarial factors determining the cost to purchase one added year are detailed in Schedule 1 of the NHS pension scheme regulations.
Your total membership in the scheme is restricted to 40 calendar years at age 60 (age 55 for MHO members) and 45 years overall. Therefore, the maximum number of added years you can purchase depends on the amount of membership you will accrue, but is restricted by the 9% contributions limit. The added years contract must run for a minimum of two years.
To apply for added years, you will need to contact your employer or the relevant pensions agency for a quotation and the required form.
Increasing your pension benefits
Purchasing added years will increase your pension, lump sum and dependant benefits as follows:
- if you are a secondary care doctor, each added year provides an extra 1/80th of final pensionable pay at retirement
- if you are a GP your average annual dynamised earnings during the period of the purchase will be multiplied by the amount of years bought. This amount is then credited to your total dynamised career earnings. Your total career earnings figure is then multiplied by 1.4 % to calculate the pension.
In both cases a lump sum will also be payable equivalent to three times the added years pension.
Affect on tax
HMRC (HM Revenue and Customs) allow tax relief on pension contributions up to 100% of relevant UK earnings for the tax year. Your added years contributions will therefore benefit from tax relief.
Please note that breaching the annual allowance or lifetime allowance may result in a tax charge.
If you are a secondary care doctor, an added years contract assumes that you will be working whole-time without interruption for the duration of the contact.
Any part-time work undertaken during the contract period reduces the amount of added years purchased. For example, if you bought ten added years and throughout the contract period you were working half-time you would have paid for and be credited with five added years.
If you are a primary care doctor the benefit of an added years contract is based on your pensionable earnings during the contract period.
Part-time work for GPs will usually result in less income earned and as a result you will be paying contributions towards the contract on less income. You will subsequently receive less benefit from the contract than if your earnings had been higher.
Cancelling your contract
It is possible to request a cancellation of an added years contract by contacting the relevant pensions agency.
You are strongly advised to seek independent financial advice when considering cancelling an added years contract as you will not be able to restart the contract once it has been cancelled.
It is not possible to receive a refund of added years contributions paid. You will receive a portion of the added years you contracted to buy.
Leaving the NHS pension scheme
If you rejoin the scheme within 365 days of leaving or opting out of the scheme, you will be able to restart your added years contract.
If you rejoin the scheme after 365 days or more of leaving, you will not be able to resume your added years contract and, upon retirement, you will be credited with the additional service you paid for up to the date of leaving.
Contributions for added years during both paid and unpaid maternity leave are payable on your salary immediately prior to your maternity leave. If you choose not to pay pension contributions on your unpaid maternity leave this period will be treated as a break in pensionable service and will reduce the amount of added years you are purchasing.
If your break in pensionable service is for 12 months or more you will not be able to resume your original added years contract.
Contributions for added years during a period of paid sick leave are payable based on your salary immediately prior to your sick leave.
If you have unpaid sick leave, along with contributions for the main pension scheme, your added years contributions will stop.
If your unpaid absence is for 12 months or more you will not be able to resume your original added years contract.
If you choose to pension the period of authorised absence then you will continue to pay towards your added years.
If you choose not to pension your period of unauthorised absence and your unpaid absence is for 12 months or more you will not be able to resume your original added years contract.
New NHS employment
You will need to let your new employer know that you have an added years contract and provide them with a copy of the election form you signed when you started the contract.
If you do not have this available, your new employer should be able to verify the contract with the relevant pensions agency and begin deducting the required contributions from your pay.
Ill health retirement or in the event of death
- If contributions have been made for less than one year they will be refunded.
- If you retire on health grounds prior to age 60 your contract will be paid in full.
- If you retire on health grounds after age 60, and your contract was due to end at age 65, you will not be credited with the full purchase. You will be credited with that portion of the contract completed at the date of retirement and this will be actuarially reduced to reflect its early payment.
If you are over the minimum pension age and choose to claim your pension under the redundancy arrangements, you will be credited with the added years you have paid for.
An actuarial reduction will apply as the benefits will be paid earlier than intended. This is the case even if you have used your redundancy payment to meet the cost of the unreduced pension (for those under age 60).
If you choose not to claim your pension or you are below the minimum retirement age, you will be credited with the added years you have purchased. You will only be able to restart your added years contract if you rejoin the scheme within 12 months of leaving.
Annual and lifetime allowance
The amount of added years purchased will be taken into account when calculating the growth in the pension benefits during the pension input period.
For example, if you are a full time secondary care doctor with a contract to buy five added years, which began on your 50th birthday and is due to be completed on your 60th birthday, you will accrue an extra half a year of service in each year during the term of the added years contract.
This additional membership needs to be added to your standard membership when calculating your pension growth.
Read our annual allowance guidance
Purchasing added years may result in an increase to your pension benefits and subsequently to the capital value which will be tested against the lifetime allowance when you retire.
Read our lifetime allowance guidance
Enhanced and fixed protection
If you have enhanced protection your benefits are subject to a relevant benefit accrual test at retirement. This tests the growth in your pension benefits between 6 April 2006 and your retirement date.
If you have fixed protection your benefits are subject to an annual benefit accrual test. This tests the growth in your pension benefits each tax year.
Purchasing added years may result in the capital value of the pension increasing above the HMRC limits and therefore result in the loss of the relevant protection.