If you are a member of the NHS pension scheme, you will
soon be asked to make a very important decision.

That is, should you remain in the current version of the
scheme (applies if you were a member pre-April 2008) or
should you transfer to the new version (post-April 2008).

To help, the NHS have produced 'Your NHS Pension Choice'
Guide. You will not receive individual advice in the guide,
rather it's up to you to read it through and really
understand whether you should stay as you are in the
current scheme or switch to the new version.

You will receive your own NHS Pension Choice Pack between
now and March 2012. The pack includes an Explanatory
Booklet, a Choice Statement (showing a comparison of
benefits in the 1995 and 2008 Section)and a DVD (although
if you joined the scheme after April 2008 you will not
receive a pack as you have no decision to make).

It states - "Understanding your choice and the factors that
are important to you".

So what does all this mean?

Well, it is asking you to choose between staying in the
current (old) scheme, called the 1995 Scheme, or moving to
the (new) 2008 Scheme.

So, let's look at the main components of both schemes to
see what the main differences are.

The definitions are taken from the NHS Guide.

The first thing to take into account is that the 1995
scheme has a normal retirement age (NRA) of 60. The 2008
version is age 65. This is the most basic and important
difference, and is likely to mean for the vast majority of
current NHS members with many years service, that they
choose to stay with the 1995 scheme.

Another main area is on the subject of the pay that your
pension is based on. To quote the NHS, in the 1995 scheme:

For salaried people, it is the best pay that you received
in any one of the three years before retirement known as
Final Year's Pensionable Pay).

The 2008 version says:

The annual average of the best three consecutive years pay
in the last ten years, re-valued by the increase in the
Retail Prices Index (known as reckonable Pay). This is key.
If you are hospital based and have attained seniority
payments or Excellence Awards, your income can be increased
significantly in the final (say) 6 years of membership. So,
in our opinion, this means a tick for the 1995 scheme.

We then come to Voluntary early retirement.

1995 scheme:

Your pension is reduced if you take benefits before 60.

2008 scheme:

Your pension is reduced if you take benefits before 65. The
big difference between the two is that with the 1995 scheme
you'll be able to retire earlier than the new version. And,
I'm sure you'll agree, 5 years is a massive difference!

What about the issue of flexible retirement?

The current 1995 scheme:

Your pension is only payable when you retire from the NHS.

The 2008 version:

On up to two occasions you can take part of your pension
whilst still working and earning pension. You can earn
further pension if you return to work after taking your
benefits. For anyone interested in flexible working as
described here, the 2008 version sounds a good bet.
Although please note that voluntary retirement in the
current scheme is from age 50 (although if you joined the
scheme after April 2006 the age of the 1995 scheme will
increase to age 55 from April 2010), and the 2008 version
is from age 55.

And Ill-health retirement?

1995 scheme:

Tier 2 ill-health benefits provide an enhancement of 2/3rds
prospective membership to age 60.

2008 scheme:

Tier 2 ill-health benefits provide an enhancement of 2/3rds
prospective membership to age 65. For ill health
retirement, again, the 2008 version offers more potential
benefits as they would be based on a longer time period.

Similarly, Death in Service dependants benefits are likely
to be higher in the 2008 version, although the lump sum is
2 times salary on both schemes if you die during service.

What if you are likely to leave the NHS scheme before
retirement whilst not taking any benefits, and to then have
what are known as deferred benefits? As a deferred member
you do not earn any further benefits but those that you
have earned are held in the Scheme and paid to you when you
claim your benefits.

If you move to the 2008 Section and then leave the NHS
before you retire, but do not return, your benefits are
likelyto be lower than if you stay in the 1995 Section.
This is because benefits in the 1995 Section are paid from
60 but benefits in the 2008 Section are not paid until 65.

If you do not expect to remain in NHS employment/retain NHS
earnings until you retire, the Guide states you will most
likely NOT benefit from moving to the 2008 scheme.

The document also discusses the subject of Late retirement.
A new issue here is that:

If you work on past age 60 in the 1995 scheme, there are no
extra pension benefits given other than 1 year is awarded
for 1 year's service.

In the 2008 version, if you work on past age 65 and do not
take your pension, your benefits are increased. For
example, if you work on to age 68, and then take your
pension, it will be increased by 17%.

In the 1995 scheme this does not apply. In practice,
however, the vast majority of medics and dentists retire
below age 65. It is also very debatable whether you would
delay taking your pension beyond this age even if you
continued to work, as any increase in the final pension
would have to be compared to missing out on taking, say,
£50,000 pa multiplied by the number of years you
continue to work.

Then we come to members that decide they need added
benefits, and buy additional pension. Both schemes offer
this, but again the 2008 scheme does not allow you to take
any extra benefits before age 65. For the 1995 version, it
is age 60. Once again we cannot emphasize enough this
difference; that both in the standard scheme, and any
additional pension you buy, you need to be very confident
that you will work until age 65.

If you transferred to the 2008 scheme, say in your 40s, and
took retirement 'early' at age 60, on page 10 of the guide
the position is starkly shown. The pension for a retiring
doctor or dentist would be 26% lower at age 60 than in the
2008 scheme.

This would reduce the £50,000 pa pension to
£37,000 pa!

So far, the guide discusses the options generically, making
no distinction between hospital individuals and those such
as General Dental or Medical Practitioners.

When we contacted the Helpline to check on this, the answer
was 'we do not know'.

We will chase this and provide an update in a future
article.

Summary

Taking this as a whole, we cannot see any main advantage
for a doctor or dentist to switch to the 2008 scheme.

Even though some of the death and ill health benefits in
the new scheme may offer more cover, the fact that the
current 1995 scheme has a normal retirement age of 60 is
absolutely crucial. As is the fact that many hospital based
medics and dentists receive pay rises above inflation in
their 50s.

So for the vast majority it will be a matter of thanks but
no thanks. As ever, make sure you read the guide thoroughly
to make sure!

Here's the NHS Helpline number: 0300 123 1601.

The Financial Tips Bottom Line

The regime you opt for is a final one, so make sure you
check all the factors to ensure you make the right choice
for you!

ACTION POINT

Read your guide thoroughly Listen to the DVD Check your
Pension Choice Statement Call the Helpline if unsure
Question your financial adviser

----------------------------------------------------
Ray Prince is an Independent Financial Planner with
Rutherford Wilkinson ltd, and helps UK Resident Doctors and
Dentists get the best deals on mortgages, protection and
investments, as well as helping them achieve their
financial objectives. Just visit
http://www.medicaldentalfs.com to get your free retirement
planning guide. Rutherford Wilkinson ltd is authorised and
regulated by the Financial Services Authority.

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