NHS PENSION SCHEME

If you are part of the NHS you pay between 5% and 8.5% of your earnings, the NHS will pay 14% and the rest is subsidised by the DOH/Treasury. You receive tax relief at your marginal highest rate on the contributions so for 40% tax payers the net cost is 3.6%. There is no fund, so there is no investment risk, and your payments are used to pay the pensions of retired NHS employees.

You will receive a (tax free) lump sum and an inflation-linked pension when you retire plus a spouses pension if they survive you. Alternatively, should you die before retirement, a reduced inflation-linked pension and lump sum on ill health retirement, or a death in service lump sum plus spouse and/or dependents pension.

For GPs the value of these benefits is dependent upon your total uprated earnings(TUE) at retirement due to ill health or death. This figure is simply your earnings for each year of your career, which is then dynamised to bring it up to today's value. The total is then multiplied by 1.4% to give a pension per annum and the lump sum is usually 3 times the pension (pre 25/3/72 membership may be different).

What is Ill health retirement and how much would I get?

The definition is - "permanently incapable of discharging duties efficiently because of physical or mental infirmity."

How much, depends upon length of service, and the level of earnings during your career. Broadly speaking, during the first 5 years of service the amount is minimal and after, say 10 years of service, the pension is approx a quarter of your average income.

So for example, a GP with average career earnings of say, GBP 75,000 and 13 years service, could expect an ill health retirement pension (IHRP) of approx GBP 21,000 pa plus a lump sum of GBP 63,000. Remember, this has got to last the rest of your life so those of you with families and/or mortgages should consider protecting your income/mortgage in the event of ill health and not just death. This is because, statistically speaking, you are up to 20 times more likely to stop work due to ill health than you are to die before the age of 65!

How much would my spouse get if I were to die in service?

Spouses receive the members income for 3 months (6 months if one or more children) and a pension of 50% of the value of members pension at the date of death, and will be payable throughout their lifetime, unless they remarry! They will also receive a lump sum of 2 x average Dynamised income. If there are dependent children then they will also receive a pension of 25% of the members pension up to a maximum of 2 children.

So for example, a GP with a spouse and 2 children dies at say, age 37, with the same service/earnings as above. The widow(er) would receive a lump sum gratuity of GBP 150,000 (GBP 75,000 x 2) and a spouses pension of GBP 10,500pa (GBP 21,000 x 50%). A further GBP 10,500pa would be payable whilst the children are dependent (reducing to GBP 5,250 if only one dependent child). Again, I am sure most would agree this is an insufficient amount to raise a family over the longer term, so it is highly recommended to check your life cover.

Ok, assuming I reach retirement, how much pension will I get then?

Lets assume you qualified at age 24 and then you worked abroad for a couple of years, at age 60 you would have achieved approximately 34 years service. Again, assuming the same average income of GBP 75,000pa over your career (bearing in mind earnings are considerably lower during your early years) then the approximate pension (in today's value) would be GBP 35,700pa plus a lump sum of GBP 107,100. If you then died your spouse would receive GBP 17,850pa for the rest of their life.

Can I top-Up my NHS pension, as I think it will be insufficient?

In most cases - yes. You have to be careful, however, that you do not fall foul of the governments new maximum tax qualifying pension pot, aka The Lifetime Allowance. For the current 2009/10 tax year this is set at GBP 1.75m and this will increase to GBP 1.8m by the tax year 2010/11. The equation for calculating the value of defined benefit pension schemes such as the NHSPS is 20 times the pension plus lump sum. Therefore, in broad terms, if you are likely to retire on a pension of GBP 66,000pa or more (in today's value) from the NHSP, then you could breach the limit.