On 5 December, the Department for Health and Social Care (DHSC) launched a consultation; this proposes amendments to the NHS pension scheme (NHSPS). The reforms aspire to allow employees a more flexible retirement, and thus help retain experienced staff – with a particular focus on senior medical staff.
The consultation will run for 8 weeks, closing on 30 January 2023. Reforms are expected to be implemented in late spring 2023.
What is the current problem?
The NHS is in the midst of a staffing crisis, with both recruitment and retention being problematic. According to the BMA, the average retirement age for consultants in 2020/21 was just 59.
Most NHS employees, who are approaching retirement, have a large proportion of their pension in the 1995 Section of NHSPS. On 31 March 2022, both the 1995 and 2008 Sections of NHSPS closed to future accrual. Thereafter, all future contributions to the NHSPS are made into the 2015 Section. The current position – subject to some limited exceptions – is that once someone is in receipt of a 1995 Section NHS pension, they can make no further NHS pension contributions into the 2015 Section.
An additional issue for many NHS consultants is that they may be liable to large tax bills on their pension. Pension savings benefit from tax relief, up to the annual allowance (AA). The standard AA is £40,000, but this is tapered down (to £4,000) for very high earners. Consultants may have to pay tax back if their pension savings increases over their AA in any tax year. This is a significant concern amongst many doctors, not only those close to retirement.
The proposed remedy
The consultation proposes the following reforms:
- An option to partially retire – this will enable employees who are over the minimum pension age (for the majority of employees, this is currently 55) to access up to 100% of their 1995 Section pension, whilst continuing to pay contributions into their 2015 Section pension pot.
- Removal of the limit on hours recently retired staff can work – following retirement, staff claiming 1995 Section benefits can currently only work 16 hours per week in their first month back at work, without impacting their pension.
- Retired staff will be able to re-join the NHS pension scheme – this aims to encourage those who have already retired to return to NHS employment.
- Giving more ‘headroom’ against the £40,000 pension tax AA by only considering growth in pensions savings above inflation – reducing the likelihood of senior doctors receiving a tax bill or, when they do, the bill should be smaller.
- Allowing staff working in primary care networks (PCNs), such as GPs and general practice staff, to access the NHS Pension Scheme.
Will this solve the problem?
The introduction of partial retirement, along with the opportunity for retired staff to re-join the NHSPS, will provide senior staff with more flexibility and greater certainty. However, the Chair of the British Medical Association Pensions Committee, Vishal Sharma, has warned that these Government proposals fall short of what is required and do not directly address the issues caused by the annual or lifetime allowance. He said, “These are not just issues for doctors nearing retirement, but they are also increasingly influencing the decisions of mid-career consultants and GPs, for whom partial retirement would not be an option”.
It remains to be seen if these reforms are the panacea the Government is hoping for.
Bevan Brittan’s pensions team can support your organisation in providing advice and guidance to affected employees, either by way of answering specific queries or by helping draft more general guidance for dissemination.
For further information, please contact our Head of Pensions, Nigel Bolton.
This article was co-written by Laura Cook, Trainee Solicitor.