The NHS pension - ill health retirement and death in service benefits explained

 

NHS ILL HEALTH RETIREMENT

 

Unfortunately, not everyone will work in good health to their normal retirement date and therefore the NHSPS provides pension benefits for those who are forced to retire early on the grounds of ill health. Therefore, we have outlined details of the ill health retirement package.

 

Prior to 31st March 2008 an ill health retirement pension would be payable when a member is permanently incapable of discharging duties efficiently due to physical or mental infirmity. Ill health pension would be enhanced depending upon length of service.

 

From 31st March 2008:

 

Tier Two

• Payable when a member is “permanently incapable of doing both their current job and other regular employment across the general field of employment of like duration”
• “Their previous training, qualifications and experience, and not just the medical conditions will be taken into account in assessment of their permanent incapacity”
• Entitlement to early payment of the retirement benefits earned to date could be paid and,
• Increased by a pension of 2/3rds of the member’s prospective membership to NRD (60 or 65)
• A minimum increase of 4 years capped at 60 until March 2016 (but not for the new scheme)

 Tier One

• Where a member is assessed as being “permanently incapable of efficiently discharging the duties of their present job in the NHS”
• Benefits will be based upon actual service and not uplifted

Following these changes the need for an Income Protection Policy has increased, as the ill health pension (tier 1) is even less likely to sustain a family’s income needs.

 

Action Point: Examine your own situation and consider whether your own income protection arrangements are adequate, or if they ought to be reviewed.

 

Terminal Illness

 

A member, who is terminally ill and who does not expect to live longer than 1 year, can apply to exchange their entire pension for a one-off payment, usually tax-free.

 

 

DEATH IN MEMBERSHIP BENEFITS (Overview)

 

Death in Membership benefits are calculated based on a members superannuable income with reference to their tier 2 members ill health pension.

 

There are 3 elements - what are they?

1.        Death in Membership lump sum paid tax free

2.        Spouse’s/civil partners pension

3.        Dependants’ allowance

 

NHS DEATH IN MEMBERSHIP LUMP SUM

 

Death in pensionable employment before 70:

• 2 x pensionable earnings at the date of death (but not if an ill health pension is already in payment)
• Paid to surviving widow or widower or civil partner
• If no spouse or civil partner then they are paid to personal representatives

 Death after pension becomes payable

• 5 years pension (less amount already paid)

 WIDOWS & CIVIL PARTNERS BENEFITS

• 3 months member’s final pay (6 months if more than 1 child)
• Then a pension of 50% of member’s pension based on tier 2 ill health retirement (1995 Section)
• Or a pension of 37.5% of member’s tier 2 ill health retirement pension if a member of the 2008 Section
• In retirement, widows/civil partners pension is 50% of non-actuarially reduced pension

WIDOWERS BENEFITS

 

·          Largely, as for widows, but only based on service since April 1988.

·          ‘Past’ service may have been bought up to July 1989

·          Pre 1988 service may be taken into account if they widower/civil partner can demonstrate financial dependency

·          Widows, widowers and civil partner’s pension are now known as survivor’s pension

 

DEPENDANT CHILDREN’S ALLOWANCES

 

·          Dependent child = under 23 or in full time education

 

1995 Section 25% of member’s tier 2 ill health retirement pension (up to a maximum of 50% if there are 2 or more children).  Tier 2 ill health pension will be based on service to age 60.

 

 

2008 Section 18.5% of member’s tier 2 ill health retirement pension (up to a maximum of 37.5% if there are 2 or more children). Tier 2 ill health pension will be based on service to age 65.

 

Action Point: Examine your own situation and consider whether these benefits would support your spouse and family in the event of your death.

 

NEW JOINERS ON OR AFTER 1^st April 2008 (2008 SECTION)

• New section with different rules and regulations
• Normal pension age 65
• Increased accrual rate (1/60th) – with no automatic lump sum
• Final pensionable pay – average of best 3 consecutive years in the last 10
• Actuarial increase on late retirement after age 65
• Pensionable re-employment allowed after taking pension benefits.

PENSION FOR A DOCTOR’S SPOUSE

 

If a doctor is employing his spouse it is important to consider private 'stakeholder' pension arrangements, which can be attractive as both a savings vehicle for retirement and a way to reduce yuor tax bill. 

• Employer contributions to spouse pension attract tax relief at the employer’s top rate of tax, based on “qualifying” income
• Pension fund accumulates virtually tax-free and is returnable to employing spouse/civil partner as tax free fund should spouse die before retirement
• Use new Stakeholder Schemes
• Tax-free lump sum of up to 25% of accumulated fund
• Benefits can be taken at any age from 55
• A non earning spouse can contribute £300.00 pm and receive basic rate tax relief (i.e. net contribution £240.00)

 

Provided courtesy of Kelvin Turner from Medical Money Management wwww.mmmnet.co.uk

Medical Money Management is authorised and regulated by the Financial Services Authority