NHS Pension Scheme

How pension benefits build up

The NHSPS changed in 2008 and again in 2015. Members who have been in the scheme for a long time will have two or three different sets of rules applying to benefits built up during different periods over a working life. 

Some of the more significant differences between the 1995 section, 2008 section and 2015 scheme are presented below: 

The 1995 section and 2008 section are sometimes together referred to as the ‘legacy scheme’. The benefits are calculated on a final salary basis. A single calculation is done to work out benefits built up in these sections as below:

Final salary x 1/80 or 1/60 x Time as a contributing member

In the 1995 section, the final salary figure used in the calculation is pensionable pay in the last 12 months before retirement, or in either of the two preceding years if higher.

In the 2008 section, the final salary figure is the average of the best three consecutive years pay in the 10 years before retirement that are revalued by price inflation.

Since April 2022, all benefits are built up in the 2015 scheme, which is a ‘career average revalued earnings’ scheme. Instead of a one-off calculation using a single final salary figure, a calculation is done annually based on that year’s pensionable pay.

Pensionable pay x 1/54

The pension entitlement therefore builds up each year, with your pay level every year (not just your final salary) impacting on the value of your pension.

The pension benefits you have built up previously are then ‘revalued’ or uprated in line with CPI inflation + 1.5% for active members. This is to protect the value of your pension entitlement from inflation. 

Normal pension age and early payment reductions

The normal pension age (NPA) determines at what age you can take your pension benefits without early payment reductions. Early payment reductions apply because if you take your pension early you are spreading your pension entitlement over a longer period of time.  

There are similar but different actuarial reductions applied in the three sections/schemes, detailed on the NHS Pensions website. To give a rough idea, taking a pension one year early reduces the benefits by about 5%. Taking the benefits five years early reduces benefits by around 20%.

While the changes to the scheme have meant an improved accrual rate, the normal pension age has been pushed back through the reforms, from 60 to 65 and then to state pension age (which is currently 66 but there are planned increases to 68). 

Early payment reductions do not mean that you are not getting a ‘full’ pension or that you have to wait until you reach your normal pension age to draw your pension. But members do need to weigh up when they want to retire on the basis of what they would get at different times.  

McCloud Remedy

Different sets of rules (accrual rate and normal pension age) apply to benefits built up at different times in the NHSPS, as described above. A complicating factor is the McCloud judgement and the subsequent McCloud remedy.

The McCloud case was about the protections for older workers when the reformed public service schemes (like the 2015 NHS scheme) were introduced. The protections were found to be discriminatory against younger people.

The key thing to be aware of is that the result of this judgement is that there is a ‘McCloud remedy period’ from 2015 to 2022 during which eligible scheme members will be able to choose whether their legacy (1995 or 2008) section or CARE (2015) scheme rules apply to their membership during this period. There have been significant administrative delays in this process.

Retirement flexibilities

‘Retire and return’ and ‘partial retirement’ are mechanisms that a member can request to access that allow them to bring some or all of their pension into payment while continuing to work in the NHS.

The rationale in part is that scheme members who are 60 or over now are likely to have some entitlement in the 1995 section with a normal pension age of 60. 

The retirement flexibilities give the potential for members to access unreduced pension without retiring altogether.
Accessing the retirement flexibilities requires the co-operation and agreement of the employer. 

There needs to be agreement that the member will be re-employed (for retire and return) or be able to continue in the a role with reduced pensionable pay (as required by the rules of partial retirement). 

UNISON members can seek assistance through their branch in ensuring that requests to access retirement flexibilities are treated fairly and consistently by employers.

Note that employers have been calculating contractual redundancy payments on the basis only of service after someone takes retire and return or partial retirement.   

Ill health retirement

Ill health retirement (IHR) is a valuable benefit of the NHSPS that can be awarded to members who meet the strict criteria. Where a member is given IHR, it means that they can receive their pension early without the usual early payment reduction being applied to the value of their benefits. 

Those meeting the more stringent tier 2 criteria, do not just get an unreduced pension but an enhanced pension, with 50-67% of the benefits they would have built up had they been able to work until their normal pension age being added to what they have built up at the point of IHR.

The criteria for tier 1 involves the scheme member being permanently unable to do their current job. For tier 2, the scheme member must also be permanently incapable of carrying out regular employment of similar hours because of illness or injury.

Note that for any IHR award there is a requirement for evidence of permanence – that is, up to the member’s normal pension age.

The decision about whether someone meets the criteria for IHR is made be NHS Pensions, not the employer.  

UNISON members should access support from their local rep or branch if they are subject to a sickness absence process. 

Employee pension contributions

The level of employee pension contribution paid by an individual does not determine the benefits. There is no pot of individual savings in the main NHSPS.

There are contribution tiers such that lower paid staff pay a lower percentage than the higher paid. The rates range from 5.2% to 12.5% in England & Wales, and 5.7% to 12.7% in Scotland.  

The contribution tiers and rates for 2026/7 in England & Wales are here: Pay and contributions | NHSBSA

These are the tiers and rates for Scotland:  Member contributions | SPPA

Survivors benefits 

Lump sum payments can be paid in the event of an NHSPS member’s death. 

If an active member of the NHSPS dies in service, a payment of twice the level of pensionable pay can be paid.  This is automatically paid to a spouse or civil partner unless the member elected otherwise. 

There is also provision for adult dependants and children to receive pensions in some circumstances. Details are available in this NHS Pensions Survivors guide.

Building up extra pension

There are options to build up additional/improved pension benefits or savings. These include:

• additional pension: entering an arrangement to pay a regular or one-off amount in exchange for a known amount of extra retirement income;
• additional voluntary contributions (AVCs): paying a flexible amount into a saving pot that is invested. The amount received at retirement is not known at the outset;
• early retirement reduction buy-out (ERRBO): paying extra contributions such that the normal pension age used in calculating early payment reductions for benefits in the 2015 scheme can be reduced by 1-3 years, to a minimum of 65.   

Lump sum decision

At the point of bringing a pension into payment, members face a choice about how much to take as regular pension income and whether/how much to take as a lump sum.

Regular pension income is paid for life. It is uprated with CPI inflation each year. 

Up to 25% of the value of the pension can be converted (or ‘commuted’) into tax-free lump sum at the point the pension is taken. 

The commutation rate is such that you must give up £1 of annual regular pension income for each £12 of one-off lump sum. 

In relation to 1995 section benefits there is an automatic lump sum. There is no choice here, the member must take part of their 1995 section benefits as lump sum. They then have the choice in relation to the rest of their benefits.

This is a decision to take carefully. What is best for you will depend on your own circumstances and preferences.

Administration

The NHS Pension Scheme (NHSPS) has over 3 million members in England and Wales, making it the largest centrally administered pension scheme in Europe. 

A large team of professional staff employed by NHS Pensions (sometimes referred to as the NHSBSA) administer the scheme. Contact details for active scheme members are here: 

• Contact NHS Pensions | NHSBSA
• Scotland’s NHSPS is administered by the SPPA.Contact us | SPPA
• In Northern Ireland, it is the HSC. HSC Pension Members | HSC Pension Service

Flexible retirement options for NHS staff – information for branches

Branches have an important role in regard to employer-level pensions issues – for example, ensuring that an employer deals with requests for flexible retirement fairly and consistently. There is guidance for branches on this here: Flexible retirement options for NHS staff – information for branches.

Legal disclaimer 

The information contained within this article is not a complete or final statement of the law and is based on the laws of England, Wales, Scotland and Northern Ireland. 

While UNISON has sought to ensure that the information is accurate and up to date, it is not responsible and will not be held liable for any inaccuracies and their consequences, including any loss arising from relying on this information. If you are a UNISON member with a legal problem, please contact your branch or region as soon as possible for advice, or for non-employment matters call UNISONdirect.