Analysis

NHS pension scheme remedy: weighing the options for nurses

Find out about the public sector pensions consultation, and what it means for you and your retirement

Find out about the public sector pensions consultation, and what it means for you and your retirement

  • The difference between the so-called legacy scheme and reformed scheme, and how each applies to NHS nurses
  • We explain the options open to nurses affected by the governments consultation what do immediate choice and deferred choice underpin mean?
  • Expert advice on what scheme members need to do, how to contribute to the consultation and where to go for more information
Picture: iStock

Theres no getting round it: pensions can be complicated.

And trying to explain them with words and phrases such as accrual, deferred choice underpin and legacy scheme is not likely to make understanding them

...

Find out about the public sector pensions consultation, and what it means for you and your retirement

  • The difference between the so-called legacy scheme and reformed scheme, and how each applies to NHS nurses
  • We explain the options open to nurses affected by the government’s consultation – what do ‘immediate choice’ and ‘deferred choice underpin’ mean?
  • Expert advice on what scheme members need to do, how to contribute to the consultation and where to go for more information
An image of a piggy bank sitting on top of a calculator
Picture: iStock

There’s no getting round it: pensions can be complicated.

And trying to explain them with words and phrases such as ‘accrual’, ‘deferred choice underpin’ and ‘legacy scheme’ is not likely to make understanding them any easier.

Cutting through financial jargon to understand changes made to the NHS pension

But pensions, and planning for the end of your nursing career, are important. And though a busy working and home life may mean it’s tempting to put such arrangements to the back of your mind, it’s worth engaging with a government consultation currently underway because it has significant implications for the NHS pension scheme.

HM Treasury is seeking views on how to remedy age discrimination that arose when transitional arrangements were put in place as part of 2015 reforms to public sector pensions. To understand what that means for nurses and how the outcome of the consultation might affect you, it is necessary to wind back the clock a few years.

April 2015

The Public Service Pensions Act 2013 introduces reformed pension schemes for public sector workers

In 2010, the then coalition government established the Independent Public Service Pensions Commission, as public service pensions were becoming increasingly costly for the taxpayer and, it was argued, unsustainable. While pensions in the private sector were undergoing significant reform, those in the public sector were not.

Shift from final salary pensions to a reformed scheme

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 reformed scheme based on career average earnings where, as RCN national officer Nicola Lee puts it, each year of service ‘counts for itself’.

‘Say you were a band 7 nurse, but then for a couple of years just before retirement you worked at band 6, you wouldn’t lose all of that pensionable service at band 7,’ Ms Lee explains.

Because we are all living longer, Lord Hutton 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.

RCN national officer Nicola Lee
RCN national officer Nicola Lee
Picture: Tim George

The changes he proposed were to be introduced from 1 April 2015.

Arrangements were then put in place to protect those closest to retirement. Essentially, older members of the NHS pension scheme, who were in what are known as the 1995 and 2008 sections, did not have to move from their final salary scheme to the new 2015 career average scheme.

The arrangements were tapered, meaning that those nearest retirement were given greater protection than those who were still a few years off. Scheme members who were more than 14 years away from retirement were switched immediately to the reformed scheme, with no benefit protection.

Pension changes and discrimination against younger members

In the event, 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 pensions schemes of older members meant younger workers had been treated unfavourably.

‘The NHS pension scheme is the biggest of all public sector pensions and nursing is the biggest workforce within that cohort, and we know it’s affecting the majority ’

Nicola Lee, RCN national officer

Although the firefighters were at first unsuccessful in their case, in 2018 the Court of Appeal ruled that transition protection arrangements for both schemes were discriminatory. In June 2019 the Supreme Court rejected the government’s appeal, so the original ruling of discrimination stands.

As a result, the government is taking steps to remedy the situation, across all public sector pension schemes, including the NHS, teachers, the police and others.

There are three NHS pension schemes covering England and Wales, Scotland and Northern Ireland. The consultation covers the NHS in England, Wales and Scotland, with Northern Ireland expected to consult scheme members separately.

The Treasury’s consultation document sets out options to remove the discrimination identified by the courts.

A woman sitting at a table with a laptop, looking at a document. Nurses affected by the consultation will need to decide whether or not to defer their pension choice
Nurses affected by the consultation will need to decide whether or not to defer their
pension choice Picture: iStock

Options for resolving the pensions discrimination dilemma

The proposals in the consultation apply to all public sector pension scheme members – about three million in total – who were in service on or before 31 March 2012 and on or after 1 April 2015, including those with a break in service of less than five years.

£17 billion

The estimated cost of remedying the pensions discrimination

Ms Lee says it is impossible to say with certainty how many nurses will be covered by the proposals but the numbers are ‘significant’.

‘The NHS pension scheme is the biggest of all public sector pensions and nursing is the biggest workforce within that cohort, and we know it’s affecting the majority. I think that’s probably all we can say with certainty,’ she says.

The consultation relates to a ‘remedy period’ from 1 April 2015 to 31 March 2022.

From that date in 2022, all active members of NHS and other public service pension schemes will be placed in the 2015 scheme – the one the Hutton reforms established.

A flow chart highlighting the choices open to affected NHS pension scheme members

The pension scheme choices available to nurses affected

The government is offering pension scheme members a choice of which scheme benefits they would prefer for the remedy period. Some members may be better off under the reformed scheme than the so-called legacy scheme – the one that applied before the 2015 reforms.

The consultation seeks views on that proposal but in particular on when the choice should be made. Two approaches are proposed:

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.

11 October 2020

The closing date for the HM Treasury consultation

‘The choice is, how would you like your membership from 2015 to 2022 to be calculated – legacy scheme or reformed scheme?’ says Ms Lee.

‘Bearing in mind that a lot of people will still be working then, and won’t necessarily have planned their retirement, there would be a lot of unknowns and assumptions that people would need to consider in order to make what they’re calling the immediate choice.

‘The other option is that you don’t actually need to do anything immediately – and by immediately they mean within a 12 to 24-month period. But the government is saying, “We will offer you that choice at the time you retire because when you retire you’ll know all of those things”.

‘In some senses that would be a much clearer decision because the number of “known unknowns” for you to make those calculations would be fewer. The disadvantage of deferred choice is that a lot of people base their retirement decisions on what their pension is. And if one continues to be contingent on the other, it makes that quite difficult.’

Infographic of case study of a nurse's pension options and related financial outcomes under each scheme

The pension choices nurses need to make now

The choice at this stage is not about legacy scheme benefits versus reform scheme benefits but about when you make the choice between them.

‘It’s an important distinction because I know a lot of RCN members are getting very concerned thinking, “I’ve got to do something now”, Ms Lee says. ‘But none of this is actually going to kick in until 2022.’

The price of remedying the discrimination will be approximately £17 billion, according to the government’s own estimates.

‘This reflects the expected cost of members receiving benefits from whichever scheme provides the highest value to them for the remedy period,’ the Treasury says.

Timeline of the NHS pension scheme changes

June 2010

Coalition government establishes the Independent Public Services Pensions Commission to undertake a fundamental review of public service pension provision.

March 2011

The commission, chaired by Lord Hutton, publishes its report recommending that existing final salary pension schemes should be replaced by a new career average scheme.

April 2015

The Public Service Pensions Act 2013 introduces reformed pension schemes for public sector workers.

December 2018

After the government agrees to exempt members nearest to retirement from the pension scheme changes, the Court of Appeal rules that protection offered to older members of the judges’ and firefighters’ schemes is discriminatory.

June 2019

The government’s application to contest the Court of Appeal’s decision in the Supreme Court is refused. The following month, the government says it has accepted the original judgement.

July 2020

HM Treasury opens consultation on its proposals to remedy the discrimination.

October 2020

The consultation closes on 11 October.

Next steps: taking part in the pension consultation

Engaging with the consultation is more urgent than deciding between immediate choice or deferred choice underpin, as the Treasury wants responses by midnight on 11 October 2020. You can respond individually or as part of an organisation.

Unison national officer Colm Porter admits that pensions’ complexities can be off-putting but says that because the 2015 changes ‘upset a lot of people’, engagement with members on the topic is high.

‘Whenever we ask questions about the NHS pension scheme we do get a lot of interest. And, of course, we get even more from those closer to retirement.’

And as he points out, despite the 2015 changes, the NHS pension scheme is ‘probably one of the best out there in terms of guaranteed return’, so it may be worthwhile investing some time in reading the 74-page consultation document.

Nursing unions will be responding and they have produced briefings and guidance for their members on the proposals.

The government says it intends to legislate ‘as soon as practicable’ after responses to the consultation have been reviewed. Timelines for specific elements of that legislation will then be laid out.

Where can I go for more information?

HM Treasury’s Public Service Pension Schemes: Changes to the Transitional Arrangements to the 2015 Schemes consultation.

Nursing unions, including the RCN and Unison, are responding to the consultation, with more information available on their websites.

Daniel Allen is a health journalist

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