There are several ways of increasing the benefits payable to members when they retire.
This section outlines the current options available, but members should get more detailed information from SPPA before making a final decision. The current options are:
- Additional Pension (AP).
- Purchase of Added Years where notice of intention was received prior to 1st April 2008 and contract was commenced within the following year.
- Additional Voluntary Contributions (AVCs).
- Payment of Free-standing Additional Voluntary Contributions (FSAVCs).
In certain circumstances members may also elect to pay extra contributions to increase the amount of family benefits which may become payable.
From the 1st April 2008, both new and existing members can purchase Additional Pension (AP).
Members have the option to purchase AP either by:
- Lump Sum, or
The minimum commitment will be for extra contributions that will provide additional pension of £250 a year on retirement. Payment by this method normally attracts tax relief.
Members may buy in instalments or by a lump sum payment. Where they buy in instalments they will be required to pay a fixed amount each month and commit to the purchase over whole years, up to a maximum of 20, or to normal pension age if earlier. Employers buying on a member's behalf can only do so by a lump sum payment.
Payments will be reviewed after each scheme valuation so if the member is making payments by instalments they may increase or decrease depending upon the results of the valuation. If a member does not wish to continue making payments after an increase following a scheme valuation they may cancel the election and receive a pension based upon the contributions they have already paid.
A member may make a new election(s) at any time as long as they do not exceed the maximum.
An employer may purchase additional pension on behalf of the member but payment must be made in one lump sum.
Members can at any time buy an AP up to a maximum of £5,000 per annum for the 1995 and 2008 sections and £6,750 for the 2015 scheme in multiples of £250. Details of increases to the maximum amount of AP will be notified to Employers and placed on the SPPA website at the appropriate time.
Members can purchase an AP solely for personal benefits or for a combination of personal and partners' benefits.
|Cover option||Cover Afforded|
|Single||Member pension only|
|Single plus dependants||Member pensions and, in the event of the member's death, dependants' pensions for any surviving partner and/or dependent children|
To be eligible to make an election to purchase AP the member must be employed in reckonable service after 1st April 2008.
The factors used to calculate the members' additional pension are based on the following:
NPA 60 (1995 Section) - can make an election before their 60th birthday (last factor age 59) if claiming their benefits at 60 or 65th birthday.
NPA 65 (2008 Section) - can make an election before their 65th birthday.
NPA State Pension Age (SPA) (2015 Scheme) - can make an election before their SPA
The minimum repayment period is one year and the maximum repayment period is 20 years. Repayment can start at any time e.g. the next pay period, but must end before the member attains their 'chosen birthday' as follows:
NPA 60 (1995 Section) - can make an election before their 59th birthday or 64th birthday.
NPA 65 (2008 Section) - can make an election before their 64th birthday.
NPA SPA (2015 Scheme) – can make election between 1 and 20 years prior to their SPA (e.g. A member with an SPA of 67 can make an election before their 66th birthday)
Cessation of Additional Pension
AP instalment purchases will cease for any of the following reasons:
- Death of the member.
- Member retiring on the grounds of ill health.
- Following a break in pensionable employment of at least 12 months.
When AP is taken before the final instalment is due e.g: voluntary early retirement with actuarial reduction, redundancy or partial retirement.
If an AP purchase is cancelled due to any of the above reasons within 12 months of the start date, all contributions paid to date will be refunded by SPPA.
If an AP instalment purchase has run for at least 12 months when it is stopped, the AP purchase is not cancelled, but terminated.
|Cancellation||Any||Refund of AP contributions made (to member's estate if the member has died)|
|Termination||Death||If dependant's cover is being purchased, a full AP credit is given and outstanding future contributions waived|
|Ill-health retirement||A full AP credit is given and outstanding future contributions waived|
|Any other reason||An AP credit for the actual amount of AP is given (on advice of the Scheme Actuary)|
Following a break in pensionable employment of less than 12 months, where there is a shortfall in AP contributions due to that break, the member has the option, on returning to pensionable employment, to purchase the shortfall in contributions by lump sum.
A member in the 1995 section can elect to purchase AP to either age 60 or 65 (elected payable age). If members take AP earlier than their elected payable age, an actuarial reduction will apply.
AP in the 2008 section can only be purchased to age 65 and must also be taken with the main scheme pension, however, the member has the option to take the AP at the same time as a draw down prior to retirement, or at retirement. If the member takes this option, the AP must be taken in full (and any unfulfilled AP in instalment purchases cancelled or terminated accordingly).
AP in the 2015 scheme can only be purchased to State Pension Age and must also be taken with the main scheme pension, however, the member has the option to take the AP at the same time as a draw down prior to retirement, or at retirement. If the member takes this option, the AP must be taken in full (and any unfulfilled AP in instalment purchases cancelled or terminated accordingly). If a member leaves pensionable employment they cannot continue to make contributions. This applies to all sections of the scheme.
Employers should automatically notify SPPA when a member with AP leaves NHS employment or changes employers. If there is a gap in service then the member will be credited with the amount of pension accumulated, based on actual instalments paid before they left the scheme/changed employer.
AP will be calculated based upon the contributions paid up to the day they leave the scheme.
Member Retires before Elected Payable Age
If a member retires before their 'elected payable age', and also before the end of a payment period, they will receive an AP based upon the contributions they have made.
Member's AP will be paid on retirement at their 'elected payable age', but they can request it to be paid earlier if they retire on premature, phased or actuarially reduced grounds.
In those circumstances members' AP will be actuarially reduced.
If a member has more than one AP they must claim them all at the same time. If a member applies for phased retirement benefits whilst in pensionable employment their additional pension may be taken at first or second phased retirement, or paid at the date of the final award.
The AP must be taken in full.
Member Retires on Ill-Health Grounds
If a member retires on ill-health grounds their AP will be paid immediately without reduction provided that they were in good health when they made their election and have paid contributions for 12 months or more.
Contributions will be refunded if the member has paid contributions for less than 12 months.
If a member, while in good health, elects to buy AP for dependants then subsequently dies, a full AP will be paid based on the members original AP contract.
If a member has arranged to purchase AP for personal benefits, no AP benefits will be paid to their dependant(s).
Divorce / Partnership Dissolved
If a member's marriage or civil partnership is legally ended, SPPA will be required to provide information to the court about their AP in the same way as required to provide information about their scheme benefits.
HMRC Restrictions - Recycling of Pension
If a member significantly increases their pension contributions in the two tax years before retirement or the tax year of retirement itself, with the intention of using the retirement lump sum to indirectly fund the contribution increase, this may breach the recycling rule, e.g. the use of savings or a loan to fund the contribution increase with the intention of replenishing savings or repaying the loan.
If a member breaches the recycling rules their retirement lump sum will be treated as an "unauthorised payment" and taxed at the appropriate rate by HMRC.
Members will normally receive tax relief through the PAYE system if they pay by instalments. Members will be required to contact HMRC regarding tax relief on lump sum payments.
If a member wishes to claim tax relief for a lump sum payment for a specific tax year the payment must be received by SPPA before 5th April of the relevant tax year.
If a member changes to a part-time contract they will be required to pay the same instalment sum they paid whilst working full-time.
If a member does not wish to continue making payments they may cancel the election and receive a pension based upon the contribution they have paid.
Early Retirement Reduction Buy Out (ERRBO) – 2015 Scheme ONLY
From 1st April 2015, members of the NHS 2015 scheme and their employers can elect to pay extra contributions to reduce, or remove, the early retirement reduction if they retire after age 65 and before their NPA of State Pension Age. The election can be taken out for 1, 2 or a maximum of 3 years, depending on their NPA. The exception to this being if a member’s NPA is not on their birthday i.e. 66 years and 5 months whereby the member would be able to purchase 1 year and 5 months in ERRBO.
Members can apply at any time, however, the application must be submitted within 3 months of joining the scheme if they want it to be backdated to their start date in the scheme. Similarly, if the member wishes to begin contributing in the current scheme year they must apply within 3 months from April, otherwise the payment schedule will begin in the following April.
Members cannot make retrospective applications for earlier years. Only scheme years covered by the ERRBO agreement and pensions built up in those years will not be reduced if the pension is taken before NPA. E.g. a member elects to purchase ERRBO after being in the scheme for 5 years, those first 5 years would be reduced as normal if the member applies for early retirement but the service from 5 years on would be unreduced as the ERRBO contract has been running during this period.
The amount a member will pay is dependent on their age in complete years at the beginning of the ERRBO election. Contributions must be paid in addition to the normal tiered contributions and must also be paid on all pensionable earnings.
The ERRBO contribution table which outlines the percentage a member may expect to pay can be found here.
Members must pay the extra contributions from the start date of the ERRBO contract to their retirement date unless they notify SPPA that they wish to cease the contract or they leave the scheme.
Termination of ERRBO
Members can terminate their agreement at any time. If the period during which additional contributions are paid is less than one year, the additional contributions will be repaid and the arrangement cancelled. If the period is one year or more, additional contributions paid during any part scheme year will be repaid and the buyout period is limited to the end of the previous scheme year. If the member decides to retire before reaching the ERRBO retirement age, their pension benefits would be reduced for being paid earlier after taking account of the ERRBO agreement.
For Information Only - Members can no longer elect to purchase past added years. This provision was withdrawn from April 1st 2008.
Notices of intention to purchase received prior to 1st April 2008 were honoured if the application was made within one year of notice being received by SPPA.
If members have more than one NHS employment contract and they opt to buy additional service, contributions must be paid on earnings from all posts.
Income tax relief is normally automatic on regular contributions. Members would need to contact HMRC for advice about tax relief on any lump sum payment. Contributions are based on an elected % of salary and are deducted by employers on behalf of member and sent to SPPA. Additional contributions are only made by the member. The employer does not contribute to the additional service contracts.
Purchase of additional service at half cost for Pre 1978 Service
Members who previously received a refund of their superannuation contributions for NHS service prior to 6th April 1978, which means that it is no longer classed as reckonable service, may on re-joining the scheme apply to purchase the refunded service at prior to that date half the normal cost.
Following a determination by the Ombudsman, it was decided that part time scheme members were entitled to purchase additional service at half cost in respect of a period of full time service prior to 6th April 1978 for which they had previously received a refund of contributions
Further information can be obtained if members write to SPPA with details of their service prior to 6th April 1978, their surname if different at that time, date of birth and superannuation number. If a member is going on maternity leave then a purchase quote can be given on the basis that they return to work and repay arrears.
Additional Voluntary Contributions (AVC's)
Free Standing Additional Voluntary Contributions (FSAVC's)
SPPA cannot provide details of AVC's or FSAVC's. Members should contact providers for further information.
Please see information regarding in house provider for AVC's