Part of the Government’s response to the coronavirus (COVID-19) pandemic has been measures to boost the available NHS workforce. As part of this, rules in the NHS Pension Scheme have been temporarily suspended since March 2020 to allow retired and partially retired staff to return to work or increase their working commitments without having their pension benefits suspended or abated.
The Government sought views on proposals to continue such temporary NHS Pension Scheme “retire and return” easements on the basis staff absence rates remain higher than pre-pandemic levels and are likely to remain so coming into the winter months due to the respiratory nature of the virus.
For most staff, the NHS Pension Scheme does not place any limits on the amount that staff can work should they return after claiming their benefits. However, there are three rules across the schemes that limit the amount some retired staff can work in specific circumstances.
By way of brief background, the NHS Pension Scheme consists of the old scheme (of which there are 1995 and 2008 sections) which is closed to new members and the 2015 scheme. Abatement means restriction of the pension. Special Class Status (SCS) is a legacy provision within the 1995 section of the NHS Pension scheme and is primarily available to eligible members of staff who are engaged in pensionable employment as a nurse, physiotherapist, midwife or health visitor. SCS was abolished for new entrants from 6 March 1995.
The three rules are broadly as follows:
- The 16-hour rule: this rule requires staff who retire and return from the 1995 section of the NHS Pension Scheme to work 16 hours a week (two days) or less in the first month after retirement. Where staff work more than this limit, their pension benefits are temporarily suspended until their working commitments are reduced.
- Abatement of 2008 section and 2015 scheme members who draw down a portion of their benefits and continue working: abatement requires them to reduce their pensionable pay by 10% upon each election to draw down benefits.
- Abatement of Special Class Status members, including mental health officers who are eligible to retire from the 1995 section at age 55 instead of 60 without an actuarial reduction in their pension: abatement applies where staff return to work before age 60 and their pension plus salary exceeds their pre-retirement income.
The outcome of the consultation (published 28 August 2022 and last updated 6 October 2022) is that the Government will put through further legislation to extend the easements on the above first two restrictions until March 2023. The SCS easement will continue to be suspended until 31 March 2025.
Unions have commented that the changes do not go far enough. In particular, the easements would only assist a small number of doctors seeking to return post-retirement – namely psychiatrists with “mental health officer” status. The Unions suggest it would be more helpful to overhaul the pensions tax system, the impact of which has worsened with the high inflation.
The Government has listened and speaking to the House of Commons on 22 September 2022, Health Secretary Thérèse Coffey indicated a commitment to “fix the unintended impacts of inflation, so senior clinicians aren’t taxed more than is necessary.” To achieve this, it will amend the revaluation date in the NHS Pension Scheme “to reduce the risk that NHS staff face annual allowance tax charges as a result of high inflation”. Further by 2023 all trusts will be required to offer employer pension contributions in cash instead, helping retain senior staff who have reached the allowance for tax-efficient pension saving.
Where employees are active members of the NHS Pension Scheme, and consider that they will be affected by the lifetime allowance (LTA) or annual allowance (AA) the Government is mandating employers to offer the following choice:
- a) Continue in the NHS Pension Scheme and bear any additional tax charges that arise (in the tax year for an AA charge or at retirement under the LTA arrangements); or
- b) Opt out of the NHS Pension Scheme and apply to be paid an alternative payment.
Scheme will be the sum equivalent to the employer’s contribution (amount that the employer ordinarily pays into the relevant NHS Pension Scheme if the employee were still a member of the NHS Pension Scheme) net of the employer’s National Insurance contributions. This will be paid as a supplement to salary and so will be subject to income tax.
Where individuals opt out of the NHS Pension Scheme there may be a significant impact on the level of benefits which may be received from the NHS Pension Scheme. In particular, there is likely to be a notable reduction in ill-health benefits and death benefits from the NHS Pension Scheme, and potentially redundancy benefits. There are also legal risks for employers and therefore the choice needs to be documented carefully. For example, to ensure the offer of cash in lieu of pension is not considered an incentive to opt out of the NHS Pension Scheme in breach of the automatic enrolment legislation.
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