Taking NHS Pension early - ? Actuarial reduction calculation.

Korkyb

Hi all !

Hope you had as good a Christmas as possible !


I'm currently employed by the NHS and am considering taking my pension early in the next year or two at around 56 or 57. (Mainly cos I'm knackered).

I'll probably keep a few hours per week going after retirement to keep my foot in the door & Jack Daniels in my cupboard.


The bulk of my pension (just over 30 years) is in the 1995 section (NPA 60) and the remainder is in the 2015 section (since 2015 obviously!).

I'm aware that I'll have a choice to make once I see my final figures (re the McCloud judgement).

I've been with the NHS pension scheme since 2002 - the remainder of my years being transferred in from my previous employments (17 years worth).



My question is about the actuarial reduction that my pension will be subject to.

I'm looking at the below linked spreadsheet and am unsure which actuarial reduction table would apply to me?

https://pensions.gov.scot/sites/default/files/2020-02/NHS_Factors_1995_2008_Early_Retirement_7_August_2019.pdf


The likely suspects are:

TABLE ERF1:

(1) these factors are applicable to use to calculate the actuarial reduction on voluntary early retirement for 1995 section members’ main scheme benefits, 1995 section members’ NPA 60 Added Years’ benefits and 1995 section members’ NPA 60 Additional Pension benefits (contracts exercised from 1 April 2011 onwards)

TABLE ERF5:

(1) these factors are only applicable for use for NPA 60 Additional Pension where contracts were exercised prior 1 April 2011.


It's probably self explanatory but I'm unsure what the terms below mean:

- contracts exercised from / before.
- additional pension (in ERF5).


I'm pretty sure that ERF1 is the table I should be using but just want to make sure so that my back of the fag packet numbers are in the right ballpark.

Thanks for any advice!

saucer

Additional pension refers to any extra pension contract you proactively arranged and agreed to contribute to (see here https://www.nhsbsa.nhs.uk/member-hub/increasing-your-pension/additional-pension ). You will know if you did this and it would be shown as an additional contribution on every pay slip. I’d suggest you can therefore forget about it when working out your pension and reduction. 

Your 1995 pension would be reduced as per that first table ERF1. If you are retiring early, and with the McCloud ruling, it is likely that you will be better off with all your pension up to April next year being counted under 1995 rules so, using that table. 

One final, obvious but sometimes forgotten, point is to remember that if you are leaving the scheme e.g 3 years early, you must also remember to base your calculations (before actuarial reduction) on your accrued membership at that stage rather than what they would have been had you stayed the additional 3 years.   

spaniel101

Worth a mention also, I assume you are aware you can no longer be an 'Active' Member of the 2015 scheme, once you have taken your 1995 scheme benefits with associated  'Final Salary Link'  (preserved up to the date of future Retirement), should you retire and return nhs.

2015 scheme has an improved accrual rate of 1/54th, + Inflation, + 1.5% whilst 'Active', optional lump sum up to approx X 4.28 pension accrued Maximum

1995 scheme 1/80th + Inflation, compulsory lump sum approx. X 3 pension accrued Minimum, up to approx. X 5.36 Maximum commutation (12/1).

Korkyb

Thanks chaps

I thought that ERF1 would be the likely table for me.

It will be interesting to see what the difference between the 2015 & 1995 pensions will be when they are presented.


I recently went part time so "may" have to take my pension in the next couple of years to make sure that my "best year" salary is captured (before I went part time) & is what my pension is based on.

It could be that I might actually be better off being part time as I work more unsocial hours now than I did full time (at the same grade) & I believe it is all worked out pro-rata but I wont bank on that till I see the numbers in black & white.

Thanks again.

hyubh

Korkyb said:

I recently went part time so "may" have to take my pension in the next couple of years to make sure that my "best year" salary is captured (before I went part time) & is what my pension is based on.

It could be that I might actually be better off being part time as I work more unsocial hours now than I did full time (at the same grade) & I believe it is all worked out pro-rata but I wont bank on that till I see the numbers in black & white.

The final salary sections use whole-time equivalent pay (with calendar service pro-rated for any part time periods). So going part time does not, in itself, affect your final pensionable pay.

spaniel101

A random question, to those more knowledgeable than I...


Hypothetically speaking (not particularly for Korkyb's senario), is there a potential for those choosing to place 2015 contributions (2015-2022), back into 1995 schemes, to (unambiguously) exceed Annual Allowance at that point, purely based on this decision alone and/or is due dilligence essential here ?  

Second question, would this be put back by way of a 'Transfer In' to 1995 scheme, as such ?

DoublePolaroid

spaniel101 said:

A random question, to those more knowledgeable than I...


Hypothetically speaking (not particularly for Korkyb's senario), is there a potential for those choosing to place 2015 contributions (2015-2022), back into 1995 schemes, to (unambiguously) exceed Annual Allowance at that point, purely based on this decision alone and/or is due dilligence essential here ?  

Second question, would this be put back by way of a 'Transfer In' to 1995 scheme, as such ?

I am probably not more knowledgable than you, but I have been intensively researching the pension scheme to try to understand my own position better. I can’t answer your questions either(!) but as I understand it you will be given figures for both outcomes - reverting pension contributions during the remedy period to the ‘95 scheme or keeping them in situ - and allowed to choose what you want to do based on precisely your personal circumstances at the time you intend to draw your pension. As such any due diligence before that point is probably academic because you can choose whichever course of action works out better for you financially. Personally as I have no intention of retiring at 68 it seems unlikely, even if any penalties are incurred (and I have AA issues) that I won’t switch. 

spaniel101

Thanks DoublePolaroid.   Its just a discussion which I hear a lot.  I personally have 'deferred' 1995 (since 2012) plus current 2015 scheme so no personal choice for me.   I could understand those who may be near retirement / 60 (or 55 special class) reverting back on the brink of retirement, but beyond that as I see it, given the improved accurual and revaluation of 1.85% + Inflation + 1.5% (against 1.25% + Inflation 1995 scheme) plus final salary link for 1995, I can't see many numbers being in favour of reverting back (other than the slight difference in max lump sums).   It appears even taking 2015 scheme several years earlier 31% reduction) offers up a better initial return and potential than 1995 scheme, unless I've missed something glaringly obvious, which is always possible.

Dazed_and_C0nfused

spaniel101 said:

Thanks DoublePolaroid.   Its just a discussion which I hear a lot.  I personally have 'deferred' 1995 (since 2012) plus current 2015 scheme so no personal choice for me.   I could understand those who may be near retirement / 60 (or 55 special class) reverting back on the brink of retirement, but beyond that as I see it, given the improved accurual and revaluation of 1.85% + Inflation + 1.5% (against 1.25% + Inflation 1995 scheme) plus final salary link for 1995, I can't see many numbers being in favour of reverting back (other than the slight difference in max lump sums).   It appears even taking 2015 scheme several years earlier 31% reduction) offers up a better initial return and potential than 1995 scheme, unless I've missed something glaringly obvious, which is always possible.

Don't think you've missed anything obvious but I suspect the potential for a larger (tax free) lump sum will sway some people even though it is unlikely to be the better long term choice.

hugheskevi

spaniel101 said:

Hypothetically speaking (not particularly for Korkyb's senario), is there a potential for those choosing to place 2015 contributions (2015-2022), back into 1995 schemes, to (unambiguously) exceed Annual Allowance at that point, purely based on this decision alone and/or is due dilligence essential here ? 

This is set out in the HM Treasury Consultation (paras 2.48 - 2.51) and HM Treasury Consultation Response (paras 2.91 - 2.98).

For an in-scope member with 1995 scheme membership prior to 2015, their Pension Inputs for the period 2015-22 will be retrospectively changed to be based on 1995 scheme membership (fully protected members who remained in the 1995 scheme will not be changed). This retrospective change will happen in 2023 and is independent of the choice a member makes about whether they prefer 1995 or 2015 scheme membership for the period 2015-22.

If the member chooses 1995 scheme service for the period 2015-22 at retirement, no further change occurs with regard to Annual Allowance. If however they choose 2015 scheme membership, there may be an inflated pension input that only affects that last year of service. HM Treasury have said they will ensure members do not lose out from this accrual spike resulting as a result of choosing 2015 scheme membership.

spaniel101 said:

Second question, would this be put back by way of a 'Transfer In' to 1995 scheme, as such ?

No. 2015 scheme membership will be voided, and 1995 scheme membership reinstated.

Korkyb

hyubh said:

Korkyb said:

I recently went part time so "may" have to take my pension in the next couple of years to make sure that my "best year" salary is captured (before I went part time) & is what my pension is based on.

It could be that I might actually be better off being part time as I work more unsocial hours now than I did full time (at the same grade) & I believe it is all worked out pro-rata but I wont bank on that till I see the numbers in black & white.

The final salary sections use whole-time equivalent pay (with calendar service pro-rated for any part time periods). So going part time does not, in itself, affect your final pensionable pay.

I understand that going part time does not affect the final pensionable pay (in itself) but what I'm unsure about is the effect of an increase in the proportion of unsociable hours.

So if:

Working full time my annual salary was enhanced overall by 15% giving me a pensionable pay of £40k

then working part time (50% hours) because I work a greater proportion of unsocial hours I actually earn £25k due to the increase in unsocial hours payments. 

In that scenario would my pensionable pay be pro rata'd up to £50k (i.e. does the unsocial hours element get increased pro rata as well as the basic salary?).

If not then I just have to time taking my pension to make sure my last 12 months of full time is the figure used for the calculation.