NHS Additional Pension payment

angelstar1

Hello

I applied to buy additional pension with the NHS in Oct 2018. At the time I couldn't afford to pay by lump sum so decided to pay over 3 years. In April 2019, within 6 months, the monthly repayments were increased by almost £400. This was quite a shock. I realised it would've been cheaper for me to take out a loan and pay the lump sum when I first took out the plan instead of paying monthly over 3 years. The increase has amounted to £10k over the course of 3 years.

I feel this is an unreasonably massive increase and I had not been told about it, even though it was within 6 months of starting the plan. NHS pensions told me that they carry out a review of additional payments every 4 years, but this is not stated in their Guidance Notes and despite talking to several people at the pensions agency as well as my local pensions manager, nobody informed me that an increase could take place and was in fact imminent. I wonder if you think there is anything I can do about it. I would like to see if I can buy the additional payment by lump sum, instead of continuing with the monthly instalments, but on the calculation before the increase came into affect on 1 April 2019 - do you think I have a valid complaint?

Thanks for any advice.

saucer

Hi Angelstar
Welcome to the forum.
Speaking as someone who had a monthly AP contract for many years, I would be surprised if you could wind back the clock and now buy via a lump sum. There was very little adjustment to the monthly amounts due for quite a few years, and the recent one was quite a shock, but I would suspect there is very little room for appealing after the fact...sorry for the pessimism. I would think of it like a good fix rate mortgage or bond deal that can get withdrawn with little notice.
If you decide the deal is not now affordable, you can of course leave what you have contributed, and you will effectively get around 1/6 of the additional pension you had planned (6 months out of 3 years), and this will compound by CPI every year...something to bear in mind
:-)

hugheskevi

I applied to buy additional pension with the NHS in Oct 2018. At the time I couldn't afford to pay by lump sum so decided to pay over 3 years. In April 2019, within 6 months, the monthly repayments were increased by almost £400. This was quite a shock.

In September 2018 the Govt reduced the discount rate used to calculate the cost of pensions - more details about this are at this link. The change applied from April 2019.

The discount rate is effectively the expected rate of return on the money you contribute to purchase Added Pension, so if the expected rate of return reduces, the amount of capital required to fund a future liability increases, ie, the cost of Added Pension goes up.

I feel this is an unreasonably massive increase and I had not been told about it, even though it was within 6 months of starting the plan.

The main NHS information page about added pension states:

Will I pay the same amount every month? Usually yes. Purchase by instalments is however subject to review based on advice from the Scheme Actuary, and following review the cost of future instalments of an existing arrangement could be changed. If the cost of future instalments increases as a result of a review you will have the option to end your purchase. You would then be credited with the proportion of Additional Pension that you had paid for.

NHS pensions told me that they carry out a review of additional payments every 4 years, but this is not stated in their Guidance Notes and despite talking to several people at the pensions agency as well as my local pensions manager, nobody informed me that an increase could take place and was in fact imminent.

The reference to 4 years sounds like it refers to the regular scheme valuations. The discount rate change was separate to this, and a previous discount rate change occurred in 2016.

I wonder if you think there is anything I can do about it. I would like to see if I can buy the additional payment by lump sum, instead of continuing with the monthly instalments, but on the calculation before the increase came into affect on 1 April 2019 - do you think I have a valid complaint?

The scheme cannot agree to this as this would disadvantage other scheme members by increasing the notional scheme deficit, as the scheme would not receive the full cost of the pension being purchased.

I can't see any complaint being successful as the scheme literature appears clear that the price can change and that if you wish to cancel the contract following a price change you can do so without penalty.

JoeCrystal

It looks like you might have to put up with it. As hugheskevi pointed out already, it might be worth cancelling the plan, get any Additional Pension credited and then look into making any more Additional Pension by lump sum instead?

angelstar1

Thanks everyone, it's as I thought.