The NHS Pension Scheme Dr Andrew Dearden Chairman of the BMA’s Pensions Committee

1. The NHS Pension SchemeDr Andrew DeardenChairman of the BMA’s Pensions Committee

2. Back to 2003 – 4. • The then Government wanted to • Impose a new inferior CARE Scheme at set date • To increase the normal pension age from 60 to 65 in single move • Drag all accrued benefits into the “new” scheme • No choice to stay in “old” scheme • Savings+++++ • NHS TU opposition then led to the 2008 agreement.

3. Hutton Review • UK-wide report.  • Independent from Government.   • The interim report - mid-October before the spending review.  • Oct recommendations - were generic and not scheme specific •  The final report will be published before the spring Budget. •  There will be no ‘slash and burn’ of public sector pensions. •  Decisions on the recommendations - a matter for Ministers. •  Hutton will meet with unions again now initial report is published. 

4. Hutton Review • Hutton reassured(?) us that; • Accrued pension rights are safe, • Pensions in payment are safe, • The decision to replace RPI with CPI was the Government's not his. (this change continues), • Tax on retirement lump sums is not in his brief and nor is it being considered

5. Hutton Review • Headline Options are: • Further increase in the employee contribution rate. • Replacement of final salary by some form of Career Average Revalued Earnings (CARE). • Increase in normal pension age to possibly to 65, or somewhere in between.

6. Comprehensive Spending Review (CSR) • The state pension age will increase to 66 by 2020, faster than planned for women, • The Hutton review of public sector pensions welcomed reporting in Spring. • No 'race to the bottom' but emphasised that public sector pensions needed to be affordable • Highlighted that tax-payers used to fund 1/2 of the public pension cost but now fund 2/3. • Likely to be attempt to reverse

7. CSR • Employee contributions likely to increase - increases will be staggered and progressive with the highest earners paying most. • A consultation on the current discount rate which is used to value public sector pension liabilities. • The government will look to make an additional saving (above and beyond those made by existing cost sharing agreements) of £1.8m per year by 2014. • It is anticipated that the current MP's pension scheme will have to end.

8. Timings of pension scheme changes • Spring 2011 – Hutton report • End 2011 – HMG decide /consult • Changes made in regulations etc - beginning 2012 • In place by April 2012. • Choice exercise ends 2011 - 2 • Commence ??? April 2012 - 3

9. New Tax Changes affecting Pensions • Annual Allowance reduced from £255,000 to £50,000 from April 2011. • Lifetime allowance (LTA) reduced from £1.8 million to £1.5 million from April 2012. • Proposal that unused allowance from up to three previous years will be carried forward to offset against the excess contribution. * • Deemed contributions to defined benefit schemes calculated using a simple “flat factor” method set at 16. **

10. * means… • We note that the original proposals have been toned down considerably as suggested in the BMA response. • Unused annual allowance will now be able to be carried forward for up to three tax years which would mean that a Specialist Registrar, on qualifying as a Consultant, would in the vast majority of cases no longer face a tax charge of up to £25,000.

11. And ** means • Even the highest earners in the NHS Pension Scheme are likely to avoid tax charges. The valuation factor for annual increases to pension against the Annual Allowance will be 16:1. • This means that as long as an individual's pension accrual doesn't increase by more than £3,125 (£50,000 divided by 16) in a single tax year then they would not face an additional tax charge.

12. And for GPs… • This will work in the same way that GPs pay their tax. • For example, following the tax year April 2011 - March 2012 • GPs will have to estimate their pensionable income for the purposes of measuring the AA, and pay any resulting charges by 31 January 2013. • They then have until 31 January 2014 to make/receive a balancing payment depending on whether the estimate was too high/low.

13. BMA guidance on this. • BMA Guidance on Restricting Pensions Tax Relief – October 2010 • On BMA Pensions Website

14. Which pension scheme? Who can remain in the 1995 section of the NHS pension scheme: • Members in pensionable service at 1 April 2008 • Members who have previously been a member of the 1995 section of the NHS pension scheme who defer their pension then rejoin the NHS with a break of less than five years Who will join the 2008 section of the NHS pension scheme: • Members who join the NHS for the first time after 1 April 2008 • Members who have previously been a member of the 1995 section of the NHS pension scheme who defer their pension then rejoin the NHS with a break of more than five years • Members currently contributing to the 1995 section of the NHS pension scheme who elect for all their past and future service to be transferred to the new NHS pension scheme as part of the choice exercise.

15. The 1995 section of the NHS pension scheme • Salaried doctors – final salary pension scheme – benefits accrue at rate of 1/80th of final salary for each year of service • GPs – total career earnings – benefits accrue at rate of 1.4% of dynamised earnings • Benefits payable on accrual of 2 calendar years’ membership • Automatic tax-free lump sum • Retirement at age 60 • Early retirement from age 50 (moving to age 55 from 6 April 2010) • Early retirement on the grounds of permanent ill health at any age • Death and dependent benefits • MHO status • Added years/Additional pension purchase

16. The 2008 section of the NHS pension scheme • Normal pension age is 65 • Voluntary early retirement from age 55 • Accrual rates are higher (1/60th final salary and 1.87% CARE) • Final pensionable pay definition • Partner pension based on all service • Flexible retirement – draw down • Actuarial increase on late retirement • No MHO status • No added years

17. Things to do • 1. await your personal pension choice pack • UK GPs and their staff in early 2011 • Welsh Employed Staff late 2011 / early 2012 • 2. get your state pension estimate • 3. get any private pension(s) estimate • 4. review other retirement savings • 5. seek specialist IFA advice.

18. What is the Choice Exercise? • Active Members of the 1995 section have a one-off “choice” to move into the 2008section • Each member will receive a personalised “Choice” pack to explain their options • Commences January 2010 and is expected to run for 3 years in E&W, 3 months in Scotland and NI.

19. What the Scheme member might want to achieve • Work longer • Earn more and build a larger pension pot • Use their skills • Purpose / something to do • ‘step down’ pensions • Might want a different lump sum/pension balance • Tax reasons

20. Who’s Eligible? • Active in the 1995 scheme on or after 1st October 2009 • Returners post 1st October 2008 (less than a 5 year break) • Other considerations during Choice: • Retiring • Retiring on Ill Health grounds • Death /terminally ill • Retiring before Choice

21. The challenges for the scheme Offering Choice to 1.4m members in E&W alone Individual comparative benefit statements No current process for annual benefit statements Distribution of choice packs to members Ensuring that members can make an informed Choice - eliminating any risk of pension mis-selling! Legal disclosure requirements Improving data quality

22. Tranches by SHA 90,000 160,000 240,000 100,000 165,000 145,000 115,000 225,000 110,000 170,000 90,000 Programme Board No. 22

23. Conversion terms • Is 1:1 years up to age 60 decreasing by 0.2% per year thereafter • We think that you would have to retire at least after age 63 in order to benefit • Retirement after age 64 almost certain to benefit • Example - Member retiring at age 65 and taking the same lump sum as in the amended scheme would receive a pension over 8% higher after conversion • Members will be compelled to take minimum 3/80th TFLS

24. Summary • Choice to transfer all service (including added years) to the new NHS pension scheme• Be aware of differences in the normal pension age and accrual rates • Retirement before age 65 will normally result in actuarial reduction to benefits• Terms of transfer are still to be fully agreed• All members will receive a comparative benefit statement – benefits as at 1 April 2008 are transferred• If in doubt about choice seek independent financial advice

25. Questions