Five of the most-searched NHS pension questions answered by the experts

Do you have an NHS pension? Financial experts answer the most common questions people are ask about them.

The NHS pension scheme can be confusing but ultimately, it’s there to provide NHS workers with the financial security they deserve in later life. Since 2019, the number of retired NHS staff in receipt of six-figure pension payments per year has doubled.

More and more staff are receiving sizable pension payouts thanks to the scheme’s government backing. However, 2022 saw 53,762 NHS staff opt out of the pension in order to add to their take-home pay amidst the ongoing cost-of-living crisis. 26,100 of those opting out cited affordability as their main reason for leaving, with over 27,600 claiming they had to prioritise other financial investments.

According to recent figures, over a third of nurses who retired around two years ago returned to work within 12 months. These staff members often return to work with the promise of reduced hours and the ability to rejoin the pension scheme to further boost their pensionable income.

So, with uncertainty around the ability to commit to a monthly pension contribution, many NHS staff have questions about the NHS pension scheme and how exactly it works to benefit them in the long run.

The specialist medical accountants at BW Medical are here to answer your most-searched pension questions. Here are five of the most-asked.

1) How much will my NHS pension increase this year?

The NHS pension scheme is subject to a yearly increase in relation to the consumer price index (CPI). Any changes to the CPI come into effect in April of each year. The government may increase your pension payments to ensure they keep pace with the price rises due to the cost-of-living crisis.

The rate of inflation remained at 6.7% in September 2023, causing many to predict that government-backed pension schemes will allow for an increase of the same amount when it comes to pension payments.

We will not receive confirmation on the potential for an increase and how much your payments may increase by until April 2024. If increased, your revalued income will change according to the orders given by the HM Treasury, plus 1.5%. Even if prices begin to stabilise, your pension payment will not reduce.

2) How much does the NHS contribute to my pension?

For NHS staff in the UK, the employer contribution rate is fixed at 20.68% of your pensionable pay until 31 March 2024. Technically, the employer only pays 14.38% of this contribution, with the remaining 6.3% coming from central funding.

This current scheme valuation of 20.68% is due for an update in 2024. The new employer contribution rate of 23.7% will come into effect on the 10 of April 2024. However, this 3.1% increase will be funded centrally, so employers will simply continue to contribute 14.38% of your pensionable pay.

3) How does the NHS pension work?

The NHS pension scheme is able to pay out over £12 billion a year to retired NHS staff because it is fully guaranteed by the UK government. You will pay a percentage of your pensionable pay into your pension, which is then topped up by your employer’s contributions.

The amount you contribute is based on your salary, ranging from 5.1% for lower earners to 13.5% for higher earners. It’s worth noting that these contributions are currently under consultation. You will continue adding to your pension in this way until you choose to retire or opt out of the scheme. You can then withdraw your pension, either as a lump sum or in equal monthly instalments, guaranteed to continue until the date of your death.

4) Can I cash in my NHS pension early?

The minimum pension age will vary depending on which section of the NHS scheme you were a member of when you started pensionable employment.

Those in the 1995 Section are able to retire at age 60, or 55 if you have Special Class status (SCS). This status is a legacy provision for those engaged in pensionable employment, belonging to the 1995 Section. SCS allows for retirement at 55, without a benefit reduction – it was abolished for the majority of members in 1995. However, an exception was made for those who held SCS before the date of abolition and had held a consistent membership for five years or more.

Those in the 2008 Section can retire at age 65, while those in the 2015 Section can retire when they reach State Pension age or age 65 – whichever is later.

If you do decide to retire early, you will receive reduced payments to reflect the fact you’re receiving them early.  If you would like to apply for early retirement, you must contact NHS Pensions directly.

5) How much NHS pension will I get after 20 years?

Your final pension amount will vary depending on how much of your salary you contributed during your career and which particular scheme you are a member of: 1995, 2008 or 2015.

Members of the 1995 Section will receive both a monthly pension and a retirement lump sum. The amount will be based on your scheme membership and reflect the previous three years of your pensionable pay.

Those belonging to the 2008 Section will receive a pension based on both scheme membership and amount of reckonable pay. Your reckonable pay will be calculated using the average of the best three consecutive years’ pay in the last decade of service.

If you’re a part of the 2015 Section you will receive a pension based on 1/54th of your total pensionable pay for every year of contribution. Your pension will increase each year thanks to a method called revaluation. The amount is set by the Treasury Orders, plus 1.5%, and your final payable pension will be calculated by adding together all of your revalued pensions earned per year of membership.

NHS Pensions can offer you a more accurate estimate as to the value of your pension if you fill out the relevant form via their website.

The NHS pension scheme can be complex, but armed with the answers to these commonly asked questions, you should feel well equipped to make important decisions when it comes to the value of your own contributions.

Paying into your NHS pension is arguably one of the best ways to invest in your future and increase the probability of enjoying a retirement free from monetary concerns. However, before you make any key decisions about your pension you should always talk to the NHS Business Services Authority and seek regulated financial advice from a financial services professional.

BW Medical is raising the bar nationally in medical accountancy, tax and NHS pension advice with a team of specialist accountants delivering an exceptional, proactive and responsive service to a nationwide client base.

With expert knowledge in the medical accountancy field and an understanding of the ever-changing nature of NHS policy and primary care finances, BW Medical has a proven track record of success. The BW Medical team is perfectly placed to help both recent graduates and experienced medical professionals when it comes to practice accounts, taxation and the complexities of the NHS Pension Scheme.