Understanding your protection of pay options in NHS final salary pension schemes

Protection of pay does not apply to Practitioners or to members of the 2015 Scheme unless you have a ‘final salary link’ through previous membership of either the 1995 or the 2008 sections.

If you’re a member of the 1995 and 2008 sections of the NHS (Scotland) scheme, all (or part) of your pension will be based on your final NHS salary. With this in mind, the scheme offers a degree of protection should you experience a reduction in your pensionable pay due to a decrease in the hourly rate paid. Depending which section you belong to, and your individual circumstances, you may be able to benefit from two different protections.

 Protection of pay due to a ‘no fault’ pay reduction

If you are a protected member of the 1995 or 2008 section or have a salary link to preserved rights in the 1995/2008 Scheme, you can apply for protection of pay when you’ve suffered a reduction in pensionable pay through no fault of your own. In order to qualify, you must:
 
  • have at least two years qualifying membership
  • apply for protection of pay within three months of going onto reduced pay.
For example, your pay reduction could have been the result of:
 
  • a change in the nature of the duties you performed, perhaps due to ill health
  • a move to a lower paid post because of pending or actual redundancy
  • being transferred to other employment due to reorganisation.
There’s no age restriction or minimum level of pay reduction requirement and there’s no limit to the number of requests you can make if your pay reduces on more than one occasion.
 
Where a pay reduction is to ‘mark time’ for a specified period, protection can be requested at the beginning and at the end of the mark time period.
 
If you’re a protected 1995/2008 Scheme member and return to NHS employment on a lower rate of pensionable pay within 12 months of redundancy, you can also qualify for protection of pay. If you return after 12 months or more, your benefits will already be preserved automatically.
 
If you’ve moved over to the 2015 Scheme but retain a final salary link to 1995/2008 Scheme pension benefits, your pension benefits can be protected if you return to NHS employment on a lower rate of pensionable pay within five years.

Voluntary protection of pay

If you’re a member of the 1995 Section (or have a final salary link to 1995 Section pension benefits ) and you’ve reached minimum pension age, you can apply for voluntary protection of pay if your pensionable pay reduces by 10% or more for a full year following a ‘step down’ to a role where your duties are less demanding and carry less responsibility than previously.
 
You can only apply for this option once and any step down has to be officially agreed between you and your employer and they must confirm to SPPA that the step down has been agreed and that it’s a lasting arrangement. If your step down involves moving post to another NHS employer, both employers must confirm that the arrangement has been agreed.
 
Your employer will also have to confirm that your pensionable pay has not been subject to any other reductions in the 12 month period before you stepped down.
 
In order to apply, you must have at least two years’ qualifying membership in the NHS Pension Scheme at the time you step down and have not previously protected your pensionable pay under the voluntary protection of pay arrangements.

How to apply

Applications for ‘no fault’ protection of pay must be made within three months of your pay being reduced by completing the NHS protection of pay application form.

Applications for voluntary protection of pay must be made within the three months following the completion of a full year in your ‘stepped down’ role by completing the NHS voluntary protection of pay application form.

The form includes instructions for sending it to your employer so they can complete their part of the form.

How pensions are calculated with protection of pay

If you have one period of protection when you retire, two pensions will be calculated. A pension based on your protected rate of pay* plus cost of living increases for membership up to the date of protection, and a second pension for membership after that date which will be calculated on your pay* at retirement.

If by retirement, the protected pay plus cost of living increases is not more beneficial to you, then the whole of your 1995/2008 Scheme pension benefits will be calculated using your pay* at retirement.

*1995 section - the best of the last three years of pensionable pay. 2008 section - the reckonable pay, which is an average of the best three consecutive years pensionable pay in the last 10 years.

 

Example

A doctor protected his pay at £120,000 on 1 July 2008 on ceasing his medical director post and meeting all the relevant criteria. He had 32 years of service on that day. When he retired on 1 July 2012, his pay was £100,000 and he had 36 years of service.

Had he not used voluntary protection of pay, his pension would have been:
36/80 x £ 100,000 = £ 45,000

But, because he protected his pay, his pension is now
32/80 x £ 120,000 =£ 48,000) + (4/80 x £ 100,000 =£ 5,000) = £ 53,000

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