Options to increase your retirement benefits
If you’re an active member of either the NHS Superannuation Scheme or the NHS Pension Scheme (Scotland) 2015, there are a number of options available to help you increase the amount of benefits you’ll receive when you retire.
Additional Pension is an amount of extra annual pension that can be bought when you’re in employment and contributing to the scheme. To qualify, you also have to be below your normal pension age. This will either be your normal pension age set by your scheme or State Pension age and you can’t be absent from work due to ill health*. Any additional pension purchased is payable on retirement in addition to the other benefits you’ve accrued in your scheme.
Additional Pension can be bought in multiples of £250 up to a maximum of £5000 for the NHS 1995 and 2008 sections or £6750 for the NHS 2015 scheme. You can pay for it either as a single lump sum or through additional monthly contributions over a period of between one and 20 years.
The cost of purchasing additional pension will vary depending on many factors, including the amount purchased, your age at time of purchase and the length of repayment.
*Exception: Members in the 1995 section have the option to purchase Additional Pension up to age 65 (the normal pension age for this scheme is 60).
Your Additional Pension purchases can cover either:
- an increase in pension for yourself only or;
- an increase in pension for yourself AND the pension payable to your dependants (spouse, partner or dependent children) after your death.
Additional Pension examples
We’ve created some illustrations that show typical costs for purchasing Additional Pension. In the examples, we’ve assumed that the applicant has full protection and that retirement will be taken at normal pension age. Note that the figures provided are for illustrative purposes only and may be different to your final costs.
NHS 1995 and 2008 sections
Scenario 1: An NHS member aged 30 wants to increase their pension by £1000 per year and pay by regular contributions over 20 years.
|Cost at start of contract||£56.00 per month||£44.00 per month|
|Cost per year||£672.00||£528.00|
|Total amount payable||£13440.00||£10560.00|
Scenario 2: An NHS member aged 45 wanting to increase their pension by £500 per year with the cover including a dependant and paying by single lump sum.
|Total Cost Payable||£6720.00||£5340.00|
NHS 2015 scheme
Scenario 3: An NHS member wishes to increase their pension by £250 per year and pay by regular contributions over 20 years.
Self and Dependants
|Cost at start of contract||£11.00||£11.90|
|Cost per year||£132.00||£142.80|
|Total amount payable||£2640.00||£2856.00|
|Cost if paid by single lump sum||£1650.00||£1800.00|
Leaving early or ceasing contributions
If you retire before your normal pension age and claim your pension, your Additional Pension will be reduced for early payment. If you were paying by monthly instalments, your benefits may be reduced further as you won’t have completed your expected contract.
If you’re a member of the 2015 scheme and you’ve also taken out an NHS Early Retirement Reduction Buy Out, the value of this contract will also be taken into account to ensure you don’t exceed the maximum amount of additional pension allowed by the regulations.
If you leave NHS employment but return within 12 months and haven’t received a refund of your contributions, you may be able to restart your Additional Pension payments on your original terms. If your break in service is more than 12 months, or you received a refund, the agreement will be terminated and you’ll be credited with the proportion of the Additional Pension you’ve paid for.
You can choose to withdraw from the Additional Pension contract at any time. If you do, you’ll receive a proportionate credit of the benefits paid for when you retire.
If you have to leave NHS employment on ill-health grounds, your Additional Pension will be payable without reduction as long as you have paid into your contract for at least 12 months and you were in good health at the time your contract started. If you leave on ill-health grounds less than 12 months into your contract, your contributions will be refunded to you and your Additional Pension contract will be cancelled.
In the event of your death, if you’ve been paying into your Additional Pension contract for at least 12 months and you’ve elected to buy benefits for your dependants, they’ll receive a pension equal to 37.5% of the additional pension you would have received.
The dependants’ pension will be payable in full, even if you haven’t completed your agreed contract, as long as you were in good health when your election commenced. If you did not choose to include dependants’ cover on your Additional Pension contract, no pension will be payable to them.
How to pay for your Additional Pension contract
Lump sum: Payment must be made to SPPA within one month of your application being accepted.
Monthly contribution: Payment must be taken over whole years only. Payments are subject to tax relief through the PAYE system and will be reviewed after each scheme valuation. This may mean that your monthly repayment costs increase or decrease depending on the outcome of the valuation.
Additional Pension is index linked, both before it comes into payment, known as a ‘pre-payment increase’ and also when it is being paid, known as an ‘in payment’ increase.
If your application was made:
- on or before 31 March 2011 – pre-payment increases are made in line with the Retail Prices Index while in payment increases are made in line with the Consumer Prices Index.
- on or after 1 April 2011 – both the pre-payment and in payment increases are made in line with Consumer Prices Index.
Additional Pension and the Annual Allowance
If the growth in your benefits exceeds the Annual Allowance limit, you may be subject to a tax charge. Given the potential tax implications, you should seek professional financial advice if you’re planning to make a lump sum payment to purchase Additional Pension. You’ll find more information on the Annual Allowance here.
Additional Pension does not provide an automatic lump sum, but can be included in the total amount of pension given up in exchange for a lump sum at retirement.
It may be possible to take out more than one contract to purchase Additional Pension, however SPPA will take into account any existing contracts you may have to ensure you don’t exceed the maximum allowed. You can continue to pay any existing Additional Pension contracts you may have if you move to the 2015 scheme.
It’s your responsibility to ensure your employer deducts the correct amount from your salary. If you identify an error, you should contact them immediately.
Stakeholder Pensions, Additional Voluntary Contributions and Free Standing Additional Voluntary Contributions
As well as paying into your NHS pension scheme, you can also contribute to a stakeholder pension and to pension arrangements known as Additional Voluntary Contributions (AVCs) and Free Standing Additional Voluntary Contributions (FSAVCs).
These options allow you to make tax-efficient contributions that allow you to build up a separate pension pot in addition to your NHS pension. These contracts are offered by a wide range of financial services providers and it makes sense to seek independent financial advice before proceeding with these types of arrangement.
For a wide range of free information on financial planning topics, visit The Pensions Advisory Service.