NHS pension members who opted out the scheme between 2015 and 2022 are now able to buy back service that was missed and potentially benefit financially.
The recent change affects thousands of NHS staff members, including practice managers and GPs, who will now need to carefully weigh up their options, says pension expert Graham Crossley.
Specifically, they will need to calculate whether the extra contributions they would have to pay actually increase their retirement savings pot – or whether they could end up losing money.
Many pension members chose to leave the NHS scheme in 2015 following the public sector pension reforms made that saw most move into new career average arrangements.
The decision to allow reinstatement of service forms part of the McCloud remedy put in place to address the age discrimination that arose as a result of the changes.
‘A lot of people opted out of the pension scheme between 2015 and 2022 (the remedy period) for a variety of reasons’, explains Mr Crossley, NHS pensions specialist at MediFintech, part of Quilter.
‘The changes made led to a mixture of two schemes and for one cohort that created unexpected tax bills. Others misunderstood how it worked and thought they could only retire at 67 and that the pension had little value so came out without realising it was damaging them financially.
‘Now, the option of enrolling back into the pension scheme for any or all of that period between 2015 and 2022 has opened up for all members, whether they be active members, deferred (no longer paying into the scheme) or already retired.
‘Obviously, they would be liable to pay the extra contributions. But that comes with opportunities and pitfalls,’ Mr Crossley warned.
For example, analysis carried out by MediFintech about the benefit valuations sent out by the NHS Business Services Authority (NHSBSA) to members looking to buy back service has shown they aren’t giving a complete financial picture – and could lead to poor financial decisions.
‘Information sent out by the NHSBSA to members is technically accurate in that it “says what’s on the tin” but it’s given in isolation and can’t take into account a person’s individual circumstances or the impact of pension taxes’ Mr Crossley said. ‘This can lead to some members not making financially advantageous decisions.
‘For example, in one case the NHSBSA quoted a member wanting to buy back service as being due to receive an extra £5,000 a year pension. But when we ran through the numbers and calculated tax liability, the person was actually left with £1,000 a year less pension. So, they would have been paying more into the scheme to get less back.
‘Conversely, we had another case where the NHS pension quote implied it would take 16 years before the individual would see any benefit from the extra contributions being paid in. So, the person questioned whether they should opt back in. However, our analysis showed that because of how the new service interacted with their previous NHS pension membership they were actually entitled to a lump sum that was equal to more than the extra pension contribution costs. So, they actually got free pension from day one.’
Mr Crossley further said: ‘It’s not a black and white issue and is complicated for people.’
The difficulties of being able to work through the financial implications and recognising this was unfair on members has led to the Government now enhancing the Cost Claim Back Scheme set up last year to compensate NHS Pension members affected by the McCloud remedy and who have suffered financial or tax losses.
The cost claim-back application form has been updated, Mr Crossley said. ‘Members can now apply to recover the costs of getting specialist support if they opted out of the scheme during the remedy period and require advice on the potential purchase of that scheme membership.
‘This is something people should take advantage of.’
Individuals do also have time on their side, he adds. ‘Once someone receives a quote from NHSBSA they have 12 months to make their choice so there is plenty of time to consider it.
‘At the moment NHSBSA has confirmed that there is also no deadline to have to get a quote in the first instance, which is positive’.
Mr Crossley added: ‘The key message for members is don’t put off looking at this issue. Interest will keep adding up on any contributions you owe, but support is available to help you navigate what can seem like a complex system and make the best decision for your future.’
Steps to take to review your NHS Pension
Graham Crossley advises:
1.Identify whether you gave up any service between 2015 and 2022 and whether you might want to reinstate some or all of it. If you’re unsure whether you opted out or have missing service, you can check your pension record by contacting the NHSBSA on 0300 330 1346 and asking for your ’05 service extract’. This can usually be emailed the same day, and will show a record of every pensioned NHS employment so you can spot any gaps between April 2015 and April 2022. (Unfortunately this is not available via SPPA in Scotland or HSC in Northern Ireland.
2.To access a benefits valuation for buying back service, complete an application form that can be found at NHSBSA here . This should then be passed to your employer, which will need to add in some details, and submitted to NHSBSA.
3.If you are considering reinstating service ask ‘Am I likely to be able to afford this now?’ Payment can be made in a lump sum or by payment plan (if you are an active or deferred member).
4.Alternatively, consider whether the decision to buy back might be delayed once you are in receipt of pension benefits. Your pension benefit can be used to pay for the reinstatement cost and might make more financial sense.
