Understanding your protection of pay options in NHS final salary pension schemes
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
- have at least two years qualifying membership
- apply for protection of pay within three months of going onto reduced pay.
- 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.
Voluntary protection of pay
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.
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