Analysis

NHS pension reforms: what the latest update means for those on the old and new schemes

How 2015 changes to the NHS pension scheme affect nurses, plus who needs to make a choice

How 2015 changes to the NHS pension scheme affect nurses, plus who needs to make a choice

  • Unions have welcomed a government decision on the remedy option for the England and Wales NHS Pension Scheme
  • How and when affected members will be asked to choose their preferred scheme either the 2015 scheme or the 1995 legacy scheme
  • Advice for nurses on timescales, factors that may affect your pension benefits, how to choose the best option for you and when to seek further help

For many people, a pension is their most valuable asset after their home.

An NHS pension which gives you a guaranteed index-linked income for

...

How 2015 changes to the NHS pension scheme affect nurses, plus who needs to make a choice

  • Unions have welcomed a government decision on the remedy option for the England and Wales NHS Pension Scheme
  • How and when affected members will be asked to choose their preferred scheme – either the 2015 scheme or the 1995 ‘legacy’ scheme
  • Advice for nurses on timescales, factors that may affect your pension benefits, how to choose the best option for you and when to seek further help
Picture: iStock

For many people, a pension is their most valuable asset after their home.

An NHS pension – which gives you a guaranteed index-linked income for the rest of your life – is often worth hundreds of thousands of pounds.

Age discrimination and reforms to the NHS pension scheme

Pensions are, by nature, complicated and often the last thing you want to think about.

Yet for nurses affected by unlawful age discrimination resulting from reforms to the NHS pension scheme in 2015, there has been an important update.

Here, Nursing Standard looks at the background, how the government is remedying the situation and when those affected by the discrimination will need to consider their options.

Why has there been a legal dispute about NHS pensions?

In 2010, the then coalition government established the Independent Public Service Pensions Commission, as public service pensions were becoming increasingly costly for the taxpayer.

Commission chair Lord Hutton of Furness called for a move away from final salary schemes (where your pension is based on a proportion of what you are earning when you retire) to a scheme based on career average earnings. He also recommended aligning ‘normal pension age’ for those in the public sector with state pension age, effectively meaning that nurses would work longer and retire later.

In 2015, the NHS pension scheme changed. Rather than being based on final salary, it became a career average scheme, with a later normal pension age. Transitional arrangements put in place by the government meant that older workers – those within ten years of retirement age – could stay in the existing schemes, while younger workers had to transfer to the new scheme.

The arrangements were tapered, meaning that those nearest retirement were given greater protection than those who were still a few years off.

The move sparked anger from unions, as they said the new scheme offered less generous terms.

What happened when these changes were brought in for public sector pensions?

When tested in the courts, the way the transition to the 2015 scheme was arranged was found to be discriminatory against younger members of public sector pension schemes.

In separate claims, known as the McCloud and Sargeant cases, judges and firefighters argued in employment tribunals that the protection given to the respective pension schemes of older members meant younger workers had been treated unfavourably.

Although the firefighters were at first unsuccessful in their case, in 2018 the Court of Appeal ruled that transition protection arrangements for the schemes were discriminatory. A subsequent appeal by the government against the decision was thrown out by the Supreme Court in 2019.

As a result, the government must remedy the situation for all public sector pensions, including the NHS pension, not just those schemes involved in the legal cases.

How is the government trying to redress this?

Nicola Lee Picture: Tim George

The government has identified a ‘remedy period’ from 1 April 2015 to 31 March 2022 in which to redress the discrimination.

‘The way the government wants to address this is to give [affected] members who were in pensionable service the choice of their pension contributions for seven years – 2015 to 2022 – under the old scheme or the new scheme,’ says RCN national officer Nicola Lee.

Affected members will be asked to choose their preferred scheme for that seven-year period: the 2015 scheme or the 1995/2008 so-called ‘legacy’ scheme that applied before the 2015 reforms.

They are being given the choice because automatically moving all members back into the legacy pension scheme could leave some worse off.

In the summer of 2020, the government launched a consultation on the remedy. A vital question asked in the consultation was when affected members would have to make their choice, either:

1. An ‘immediate’ choice, where members would decide within a year or two after the point of implementation in 2022.

2. A ‘deferred choice underpin’ where the choice would be made when a member retires or takes their pension.

The RCN and other unions called for a deferred choice, pointing out that otherwise younger members would have greater uncertainty about their future career and retirement plans and might make a decision that would turn out to be the ‘wrong’ one when they came to retire.

What was the result of that consultation?

In February 2021, the government confirmed that deferred choice underpin will be the remedy option for the England and Wales NHS Pension Scheme.

Nurses in Northern Ireland were also consulted about their scheme but are still waiting to hear the outcome.

Making the choice at retirement means that members will not have to make assumptions about their future career or retirement plans, and all the facts will be clear at the time the decision is made, says the RCN.

Unison national pensions officer Alan Fox adds: ‘This deferred choice underpinning is a good thing – it is something that Unison had argued for.’

Are all nurses affected by this change?

It only applies to those who joined the NHS Pension scheme on or before 31 March 2012 and were still a member of the scheme on 1 April 2015.

About three million people are affected by the decision. Although the exact number of nurses affected is unknown, the RCN says it will be ‘significant’, given nurses make up a large proportion of the NHS workforce.

The government expects the total bill of public sector workers exercising the right to choose the best scheme for them will top £17 billion.

Does the right to decide which scheme you were in for a seven-year period make much difference?

For some nurses, this will be quite important, but what is right for individuals will depend on a range of factors, such as how many years they have contributed to their pension for, their career path and what age they want to retire.

‘There is a large cohort who will welcome the opportunity to move back into the 1995 scheme where they can retire earlier on as full a pension as possible,’ says Mr Fox.

‘If you don’t have big increases in pay and stay in the same band for many years, the new scheme may be better for you’

Colenzo Jarrett-Thorpe, Unite national officer for health

‘This may be particularly important for nurses who qualify for retirement on full pension at 55, for whom opting for the legacy scheme for as long as possible may be a “no brainer”.’

Colenzo Jarrett-Thorpe
Picture: Neil O’Connor

Unite national officer for health Colenzo Jarrett-Thorpe points out: ‘If you don’t have big increases in pay and stay in the same band for many years, the new scheme may be better for you.

‘Final salary schemes tend to favour those who progress. But people will have had all sorts of different circumstances and you can’t generalise.’

Unions are pressing for clear information to help nurses and other members make this choice as they approach retirement: ideally, a simple comparison between what benefits they would get under each of the two options.

Why is the period when members have a choice between pension scheme benefits only between 2015 and 2022?

The pension reforms were introduced on 1 April 2015 and 31 March 2022 will be the point at which the legacy scheme is closed to future accrual.

After this date everyone will be building up benefits under the new scheme. ‘It will not be possible to be in the legacy scheme,’ says Ms Lee. ‘That may mean that when people come to retire they will have different pots of pension benefits.’

That is complex, as the legacy scheme had a different normal retirement age and different rate of building up a pension from the new one, but information from NHS Pensions should make it clear what benefits you will have. Ms Lee expects this information to be provided through the annual benefits statement.

‘I'd like to retire at 60 but I’m not sure how much I'd get’

Like many nurses, Vicki Gilroy pays into her pension each month – and is not sure what she will get out of it.

When a person starts working for the NHS they are automatically included in the NHS pension scheme (though they can choose to opt out if they wish).

The amount a person pays into the pension is dependent on how much they earn; current contribution rates are between 5% and 14.5%.

As a late joiner – she has only worked for the NHS since 2008, having earlier worked in the Royal Navy and as a secretary in a GP surgery – Ms Gilroy is aware that she has not built up much of a pension.

‘The last time I checked, it would pay out about £100 a month,’ says Ms Gilroy, a sexual health nurse at the Queen Elizabeth Hospital in Woolwich, London.

Unaware of the right to choose schemes

She also worked bank shifts for some time when her daughter was young and did not contribute to the NHS pension during that time.

‘It feels like I pay quite a high contribution to the pension scheme – 9.5% of my pay,’ Ms Gilroy adds. ‘I would like to retire at 60, but I’m not sure how much I would get.’

She had not heard of the right to choose to which scheme her contributions from 2015 are allocated.

‘My general feeling is that people don’t like the 2015 scheme. Most people earn more as they get older. But hearing about it has made me think that I need to know more,’ she adds.

Does the scheme that I choose affect when I can retire?

No, but it may affect how much money you have if you do want to retire in your fifties or early sixties.

The 1995/2008 scheme offered retirement at 60 or even 55 for some nurses – known as the ‘special classes’ – but the 2015 scheme it will be the same as your state pension age, or age 65 if that is later.

Nurses retiring from 2022 onwards will have some benefits paid under this later scheme. They can still retire at 60 but, as part of their pension is based on the new scheme, which has an assumed retirement age linked to the state pension age, they may receive less pension benefit than if they had been able to continue in the 1995/2008 scheme up until retirement.

What happens to the pensions of those who have retired or left the NHS pension scheme since 2015?

Nurses in this position have had what is called a pension ‘event’.

The RCN has been pushing for a clear timescale for nurses who have retired to be given information and have to make a decision – at the moment this could be as late as 1 October 2023.

NHS Pensions says it will write to people who have retired and ask them to make a choice between the schemes for the 2015-22 period: this could mean they are owed money, backdated to their retirement. Some people receiving a spouse’s or dependent’s pension for an NHS pension scheme member who has died may also be contacted.

It all sounds complicated – do I need to do anything now?

‘Don’t panic,’ says Ms Lee. ‘The important thing is that nurses don’t need to do anything at the moment.’

The decision will be made as they come up to retirement. For many, it will be quite straightforward, but there may be a few with complex financial affairs who need to take advice.

She urges nurses to be aware of what is going on and understand what their pension benefits are likely to be. ‘Don’t make any rash decisions – inform yourself,’ she says.

If you are hoping to retire before you reach state pension age, being informed is particularly important, as you may receive a reduced NHS pension and have several years gap before you are entitled to a state pension. Planning now for how you fund that gap will enable you to enjoy a better quality of life.


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