Standard benefits of the NHS pension
The standard benefits you’ll receive from the NHS Pension Scheme depend on which section of the scheme you belong to (1995, 2008 or 2015). For many members though, there are three main entitlements – your annual pension, a lump sum at retirement and a survivor pension.
These benefits are detailed in the statement you receive each year, known as the Total Rewards Statement.
In each case, the statement will show the benefits you have accrued to date.
A hypothetical annuity cost is sometimes also included on the statement. This is not a standard benefit in itself, it’s simply to show the potential cost of buying similar benefits on the open market.
How is the NHS pension calculated?
The way in which your NHS pension benefits are calculated depend on which part of the scheme you’re in, as well as whether you are an officer (e.g. a hospital doctor) or a practitioner (such as a GP).
Generally speaking, the 1995 NHS pension scheme is the most generous, as it is calculated on a final salary basis, rather than a career average basis like the other two. It’s also the only scheme that provides an automatic lump sum (three times the value of your annual pension) without you having to give up any of your annual benefit.
To complicate matters, you may have built up benefits in more than one section of the scheme, so a number of different calculations may have to be made for different periods of time.
NHS pension death benefits
Alongside your annual pension and any lump-sum entitlement, your NHS Total Rewards Statement also shows the value of your survivor pension. This is a pension that may be paid to your surviving spouse or civil partner in the event of your death. It’s payable for the rest of their life.
The exact amount payable will again depend on which section you built your benefits in, and the timing of your death.
As well as a survivor pension, there may also be a tax-free lump sum payable on death. This is payable if you should die while still in service, or when you’ve been taking your pension for just five years or less.
This lump sum will also be paid to your surviving partner, unless you’ve nominated someone else to receive it. You’ll find more details in our piece, What happens to my NHS pension when I die?
Ways to increase your NHS pension benefits
After a selfless career in the health service, the least you deserve is a comfortable retirement - and making the most of your NHS pension benefits will be key to funding it.
That’s why it’s important to know your options when it comes to enhancing your benefits - the most common being the purchase of Additional Pension, or making Additional Voluntary Contributions to build a supplementary retirement fund.
You can choose to bolster your benefits by buying a set amount of Additional Pension, which will be added to your standard annual pension when you retire. You can pay for it in one lump sum, or through regular payments deducted from your pay over a maximum period of 20 years.
Additional Pension can be bought either as personal cover (which increases your own pension benefits only), or dependants cover, which increases both your pension and the benefits that will be payable to your spouse, partner or children when you die.
How much additional pension can you buy?
Members of the 2015 scheme can purchase Additional Pension up to a maximum of £8,036.20.
Note that Additional Pension doesn’t include an automatic lump sum per se - but you can use your Additional Pension in exchange for a higher lump sum when you retire (subject to maximum lump-sum limits).
Additional Voluntary Contributions (AVCs)
Another way for you to increase your pension benefits is by making Additional Voluntary Contributions. AVCs are lump sum or regular payments you make into a separate account, which is invested to provide extra income for you in retirement.
You get tax relief on your AVCs. That can make it a highly efficient way to boost your retirement savings.
You can stop, restart or adjust your payments at any time, or make one-off lump sum contributions to build the pot more quickly. Just bear in mind that because your AVC pot is invested, its value may fluctuate and is not guaranteed - what you receive depends on the performance of the fund you invest in.
When you reach your pension age, you can take up to 25% of the fund value as a tax-free lump sum. This is in addition to any lump sum you take from the NHS scheme itself.
Is it worth paying extra into your NHS pension?
Whether it's worth paying extra into your NHS pension or not is ultimately up to you. Your choice will likely depend on your financial circumstances and your goals for retirement.
For example, if you joined the scheme later in life you may wish to make up for lost time by investing more into your pension. Similarly if you've worked part-time or you've had career breaks, you might not have built up as much of a fund as you'd have hoped.
There are circumstances where paying more into your pension might not be right for you. If you're unsure, you may want to speak to a Specialist Financial Adviser from Wesleyan Financial Services.
Other ways to boost your benefits
Depending on which section of the NHS Pension Scheme you’re in, there may be other circumstances in which you can increase, enhance or protect your benefits too.
For instance, if you’re planning to retire early, your pension would ordinarily be reduced to account for the longer pay-out period - but members of the 2015 scheme have the option to buy this reduction out and receive their full benefits each year.
Select members of the 1995 scheme, meanwhile, may still have the option to buy ‘half-cost added years’, allowing members to effectively buy extra years of membership to boost their benefits. However, this only applies to those who had scheme membership refunded on or before 6th April 1978 (for any period you were a self-employed GP).