NHS Pension Scheme: Five key points for financial advisers

As NHS retirees return to work, and overtime increases in response to the Covid-19 crisis, there are some key things about current NHS pension arrangements that advisers need to understand.

1. Relaxation of restrictions for returning retirees

As Covid-19 extends its reach, an army of NHS retirees has signed up to help fight against it. In order to prevent this post-retirement employment negatively affecting their pension income, emergency temporary amendments to NHS scheme regulations have been included in the Coronavirus Act.

These amendments ensure:

Ø  Pension income of special class status holders will not be abated (suspended or reduced) on return to work. Special class status holders are 1995 Section nurses, physiotherapists, midwives, health visitors and mental health officers who meet certain service criteria. Advisers should note that abatement could still apply where members have taken ill-health retirement, where they've retired in the interests of efficiency of the service, or in limited cases where they've retired on the grounds of redundancy and subsequently return to work.

Ø  Pension income of 1995 Section NHS members who return will not be suspended if they work more than 16 hours per week in the first calendar month following retirement.

Ø  Members who have flexibly retired using the NHS "drawdown" facility will not be required to maintain a reduction in their pensionable pay of a minimum of 10%.

2. Tapered Annual Allowance 2020/21

The increase in the "adjusted" and "threshold" income" cutovers to £240,000 and £200,000 respectively effective 6 April is expected to lift all but the highest earners out of the "taper trap".

A 2003 contract consultant in England on the highest band will have basic pay for 19/20 of £107,668 and the highest Clinical Excellence Award which could be granted for that year was £77,320, then that statement appears to be true. Similar pay bands and performance awards apply in Wales and Scotland. But we live in extraordinary times and extraordinary hours are being worked by clinicians. It remains to be seen whether those working the longest hours for the benefit of us all still end up falling into the taper trap despite the change.

3. Tapered Annual Allowance 2019/20

The current public health crisis started last tax year and so did the exceptional amount of overtime undertaken by those on the frontline. So ahead of Annual Allowance reckoning for 2019/20, it's worth remembering the interim measures put in place for clinicians facing an annual allowance tax charge for that tax year.

Ø  In England & Wales, NHS employers will pay clinicians' 2019/20 annual allowance charges if settled through "scheme pays". This is achieved by the employer making a contractually binding commitment to "fully compensate" the individual for the impact on their eventual retirement income of the "scheme pays" reduction. Members may also want to discuss with their employer whether any employer-specific arrangements are in place.

Ø  In Scotland, NHS staff have been given the option of taking the value of their employer's pension contribution as an addition to basic pay.

4. Money Purchase Annual Allowance (MPAA)

Retired healthcare workers returning to NHS employment will normally be enrolled back into the NHS Pension scheme or an alternative employer scheme if they are eligible workers and depending on their circumstances.

These individuals will not have triggered the MPAA, through having taken NHS pension income alone, but anyone who has taken one or more cash withdrawals from the NHS AVC will have done so unless the cash was paid under the "small lump sum" rules.

Where the MPAA applies, any further contributions to the NHS AVC will be limited to £4,000 before a tax charge applies. Further information on the MPAA can be found here

5. Death Benefits

Recent traffic on social media indicates concern among healthcare professionals who've opted out of the NHS Pension scheme, that their loved ones will no longer be entitled to any scheme benefits in the event of their death.

So clients in this position should be reassured that although entitlement to death in service benefits ceases on opt-out, they remain entitled to death in deferment benefits, albeit these may be calculated on a different basis.

Subject to eligibility criteria, these include a lump sum and pensions for a spouse/partner and eligible children. In particular, the lump sum can be less generous on death in deferment where the member had short service.

Moira Warner is senior intermediary development and technical manager at Royal London

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