The NHS Pension Scheme (NHSPS) is one of the finest occupational pension schemes available and it forms the bedrock of most doctors’ financial planning strategy.

The NHSPS now has two sections: The 1995 Section for those members who joined the scheme before April 2008. Members who joined the NHSPS on or after 1^st April 2008 will have joined The 2008 Section. Members of the 1995 Section will have the choice to transfer into the 2008 Section, although great care and specialised independent financial advice ought to be taken before doing so.

CONTRIBUTIONS

Personal contributions into the NHSPS are between 5 – 8.5% of superanuable earnings (depending on the level of your earnings) and contributions receive income tax relief.

Annual Pensionable Pay 2009/10	Contribution Rate (indexed)
Up to £20,709	5.0%
£20,710 - £68,392	6.5%
£68,393 - £107,846	7.5%
£107,847 plus	8.5%

NHS PENSION SCHEME BENEFITS

Tax free lump sum on retirement
Inflation-proof pensions at normal retirement, early retirement, widows/widowers/civil partners and dependants pensions. Death in Membership lump sum: 2 x pensionable pay
Normal retirement age 60 in the 1995 Section (Age 55 for special classes)
Normal retirement age 65 in the 2008 Section

CALCULATING PENSION BENEFITS

Hospital posts and salaried GP posts pension contributions are calculated differently to that of a non salaried GP partner. The term ‘Officer’ is widely used in the NHSPS literature and refers to anyone who is EMPLOYED e.g. hospital posts and salaried GPs.

The calculations of retirement benefits for the two sections are different and therefore outlined separately.

The 1995 SECTION

1995 Section - Salaried GP: accrual basis = 1/80 x final salary for each year of service PLUS a minimum lump sum of 3 x annual pension.

1995 Section - General Medical Practitioner: accrual basis = 1.4% of “total dynamised NHS pensionable earnings” plus 4.2% (3 x 1.4%) as minimum tax free lump sum. The dynamising factor takes into account inflation and other factors.

Worked example - 1995 Section: An employed hospital doctor (officer) who becomes a salaried GP having joined the NHS at age 24 and retiring at 60 years of age.

Assume final earnings at retirement are £90,000 pa.

· Total Service = 36 years

· Pension = 36/80ths x £90,000 = £40,500 pa (Index Linked)

· Lump sum = 3 x £40,500 = £121,500 (Tax Free)

· Additional lump sum is available by commuting part of the pension

Worked example - 1995 Section: A self employed GP partner who joined the NHSPS at age 24 and retires at 60 years of age.

Assume dynamised career averaged earnings are £ 90,000 p.a.

· Total (revalued) career earnings = £3,240,000

· Pension = 1.4% x £3,240,000 = £45,360 pa (Index Linked)

· Lump sum = 3 x £45,360 = £136,080 (Tax Free)

· Additional lump sum is available by commuting part of the pension

THE 2008 SECTION

2008 Section - Salaried GP: accrual basis = 1/60 x final salary for each year of service at age 65 with no automatic lump sum. A lump sum can be taken by commuting part of the pension.

2008 Section - General Medical Practitioner: accrual basis = 1.87% of “total dynamised NHS pensionable earnings” at age 65 with no automatic lump sum. A lump sum can be taken by commuting part of the pension.

Worked example - 2008 Section: An employed hospital doctor (officer) who becomes a salaried GP having joined the NHS at age 24 and retiring at 65 years of age.

Assume final earnings at retirement are £104,335 pa (i.e. a salary of £90,000 pa at 60 increased by 3% pa to age 65).

· Total Service = 41 years

· Pension = 41/60ths x £104,335 = £71,295 pa (Index Linked)

· No automatic tax free lump sum

· A lump sum can be provided by commuting part of the pension

Worked example - 2008 Section: A self employed GP partner who joined the NHSPS at age 24 and retires at 65 years of age.

Assume dynamised career averaged earnings are £104,335 pa

· Total Service = 41 years

· Total (revalued) career earnings = £4,277,735

· Pension = 1.87% x £4,277,735 = £79,994 pa (Index Linked)

· No automatic lump sum

· Lump sum is available by commuting part of the pension

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

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