Being members of AISMA (the Association of Independent Specialist Medical Accountants), our very own Kieran Hancock, Director in our Plymouth office’s healthcare team was recently asked…
Those familiar with the NHS pension scheme will know there are two schemes in place; the 1995/2008 Scheme and the 2015 Scheme. They are helpfully referred to by the year they came into force. The 1995/2008 Scheme is split into two sections. The 1995 Section is for members who joined before 31 March 2008 and the 2008 Section is for members who joined between 1 April 2008 and 31 March 2015. Members who first joined the NHS Pension Scheme after 1 April 2015 are members of the 2015 Scheme.
In line with all public sector schemes, the NHS was obliged to create a new scheme in 2015. The 2015 Scheme is different from the 1995/2008 Scheme in two key areas:
- Pension benefits are linked to Career Average Revalued Earnings ‘CARE’ and not final salary.
- The normal retirement age is aligned to a member’s state pension age, as opposed to age 60 in the 1995 Section and 65 in the 2008 Section.
All existing members of the 1995/2008 Scheme were obliged to join the 2015 Scheme on 1 April 2015. There were some exceptions, however, based on a member’s age – those members within 10 years of normal retirement age were offered full ‘transitional’ protection i.e. staying in their legacy schemes. Members between 10-13.5 years from normal retirement age on 1 April 2012 were offered ‘tapered’ protection, meaning they did not immediately move to the new scheme on 1 April 2015, but would instead transition at an appropriate date over the coming years. Those closest to the 10 year limit will finally transition on 1 February 2022.
Members can still access pension benefits from 1995/2008 Schemes at age 60/65, but could not access their full entitlements in the 2015 scheme until their state pension age.
As you can see, the running theme here is age.
As a result of this, and the fact that similar changes applied to all public service pension schemes, some Firefighters and Judges took on the Government regarding ‘age discrimination’ of the new schemes – each won their case and the Courts found that the Government had discriminated by age against younger pension scheme members. This judgement was back in 2018 and the Courts ordered the Government to remedy this discrimination.
Since then, the Government has been busy working on proposed remedies and has now issued a consultation document proposing to remove that discrimination. In its 74 pages, the document provides a number of solutions intended to put scheme members in the position which suits them best. Largely, this provide the following options for those already in public service pension schemes on or before 31 March 2012 who were still members of schemes on 1 April 2015:
- Members who transitioned to the 2015 scheme can compare their transitional scheme benefits against their legacy scheme and choose the most valuable.
- Anyone who was able to remain in their legacy scheme can compare their benefits to those in the 2015 scheme and again, choose the most valuable.
The consultation asks for input on how this should be dealt with, including when this choice is made and provides two options:
- Immediate choice: the choice between which benefits are most valuable to a scheme member would be made in the few years following 31 March 2022.
- Deferred choice underpin: the choice between benefits would be made when the member retires, or when they draw their pension benefits. Notably, a scheme member would in the first instance be deemed to accrue benefits in their legacy scheme, with the choice then coming at retirement when the two schemes can be compared.
The 31 March 2022 date above is key, as this is deemed to be the end of the ‘remedy’ period, being from 1 April 2015 to that date and is the final date when all members with ‘tapered’ protection will have moved over to the 2015 scheme, as well as when those with ‘transitional’ protection will have reached their normal retirement age.
From 1 April 2022, the legacy schemes will close and all scheme members will moved into the reformed scheme.
The full consultation document can be seen here
As you can see, despite the NHS pension scheme and other public service schemes already containing a number of nuances, further complication has been added. Whilst the news is clearly positive for those who potentially ‘lost out’ by moving to the 2015 schemes, there is a further mountain to climb – Comparing benefits in two schemes is complex and time-consuming, and requires professional advice.
No action is required from members at this point, but another layer of complication has been added to estimating the pension a member will get on retirement. Clearly input will be needed from specialists, so if you are one of the scheme members affected, please feel free to contact me or your local Healthcare adviser for more information and support.
For more information, please contact Kieran Hancock, Senior Manager – 01752 981121 Kieran.Hancock@pkf-francisclark.co.uk .