Introduction
The NHS Pension Scheme is complex at the best of times. It’s also always subject to change – which can make it even more difficult to understand your rights, obligations and benefits.
The last few years have seen a number of key changes to aid staff retention. We'll summarise these below.
2023/24 NHS Pension Scheme changes
A number of factors in recent years has led to a significant number of doctors leaving the NHS. Many were being hit with annual allowance or lifetime allowance charges, due in part to the impact of inflation on pension pots.
Others were limited in how they could access their pensions without incurring a charge.
Since then, a number of retirement flexibilities (particularly for members of the 1995 section of the scheme) were introduced. These give greater leeway on how doctors take their pension benefits, helping members access their pension while continuing to work in the NHS.
The key changes were:
Opening up partial retirement to all sections of the scheme
Since October 2023 (April 2024 for Northern Ireland), all members of the NHS scheme now have access to partial retirement, regardless of which section of the scheme you’ve built your benefits.
Partial (or phased) retirement means being able to draw all or part of your pension while continuing to work. You can find out more in our guide to partial retirement.
Enabling pensionable re-employment
From 1 April 2023, employees who have taken their pension from the 1995 section and return to work are now able to re-join the NHS pension scheme and build further pension benefits in the 2015 scheme.
CPI changes
As the NHS Pension Scheme is linked to the Consumer Price Index (CPI), high inflation in recent years has impacted the growth rate of many members’ pensions, leading many into tax charges.
Changes in 2023 were therefore made to the career average (CARE) scheme (2015 and 95&08 practitioner) scheme revaluation date, moving it from 1 April to 6 April each year. This means the same CPI is used to revalue the schemes as is used to calculate the AA, so the AA is now based on true pension growth and not inflation.
Changes to annual allowance and lifetime allowance
In 2023, changes were announced for both the annual and lifetime allowances affecting UK pensions. Announced by the Chancellor of the Exchequer in the 2023 spring budget, the changes are as follows:
- The annual allowance was increased from £40,000 to £60,000, effective from the 2023/24 tax year
- The lifetime allowance was abolished in April 2024. This was replaced with the lump sum allowance (LSA) and lump sum death benefit allowance (LSDBA).
- These allowances determined how much you could contribute to your pension and receive tax relief on, over the course of a year and throughout your lifetime.
The scrapping of the lifetime allowance means there’s now no limit to the amount you can accrue in your pension throughout your working life without being penalised. This is on the condition you don’t exceed £60,000 annually. You can only withdraw up to 25% of your total pension value as tax-free cash, provided the value is less than your lump sum allowance of £268,275 or your personal allowance if higher.
The McCloud judgement (transitional protection remedy)
The McCloud judgement (Public Sector Remedy) is the solution to discrimination introduced by the public sector reforms from 2014 (2015 for the NHS). The reforms introduced rules to protect older members from moving to the new scheme, discriminating against younger members.
The judgement affected:
- NHS scheme members in service before 31st March 2012 and on or after 1st April 2015.
- Those who’d taken their pension benefits and retired since 1st April 2015.
- Deferred members returning within five years.
Affected members of the NHS Pension Scheme who had any service built up in the 2015 scheme between 1 April 2015 and 31 March 2022 were moved back to their legacy (95/08) schemes.
Any members still active on 1 April 2022 were then moved into the 2015 scheme, which is a career average (CARE) scheme.
What’s the impact of McCloud?
When pensions become payable, affected members will be asked which section of the scheme they wish to take benefits from for the ‘remedy period’ between 2015 and 2022.
This is known as a deferred choice underpin (DCU) and allows NHS Pension Scheme members to make their choice based on their career and a known retirement date.
There are hundreds of thousands of NHSPS members affected, so the scheme is taking a phased approach to contacting everyone who qualifies. This started from April 2024. Retired members and beneficiaries of deceased members will receive an immediate choice.
For most NHS scheme members, there is nothing to do until your options are presented to you.
What to consider when making your choice
When it comes to making your McCloud decision there will be numerous factors to think about – not just which pot is higher. Your choice may depend on whether you want a standard pension, or to claim a lump sum. The rules about dependents may also vary.
For the vast majority of people who qualify, the McCloud judgement should leave you better off - though the amounts of money involved may not be life changing.
Still, when the time comes to make a decision about which scheme to choose, it would be wise to speak to an expert to make sure you are choosing the best option for your circumstances.
Contribution rate changes 2024
In 2024, NHS pension contribution rates (the amount you and your employer pay into your NHS pension) also changed. You can find the latest contribution rates in our main NHS pension scheme guide.