Are your retirement plans up in the air?
The Government has plans to adjust the retirement age for GPs BMA pensions expert John Lindsay explains
he recently published pensions green paper proposes that the retirement age in all public sector pension schemes should rise from 60 to 65. This includes the NHS pension scheme. The profession immediately made it clear that such a change for doctors would be vigorously opposed.
What is being proposed and from when
There will be a distinction between new entrants to the pension scheme and existing doctors. For new entrants, it is proposed that a retirement age of 65 will apply as soon as they enter the scheme. Subject to consultation with the BMA, the intention is to implement this for anyone entering the NHS pension scheme from 2005 or 2006.
For existing doctors, the position is more complex.
The implementation date is likely to be later than for new entrants, so that any doctor currently within two-three years of retirement is unlikely to be effected.
Age 60 will continue to be the normal retirement age for existing service up to the starting date of the new arrangements. Only service after the new arrangements are introduced will attract a retirement age of 65. Hence, for example, a doctor with 30 years' service who is currently seven years away from retirement will probably only have about four years of total service affected by the new arrangements.
The consultations with the trade unions will include possible improvements to the NHS pension scheme, paid for by the savings accrued on moving to an age 65 retirement age. It is too soon to say what these improvements might be, but dependants' benefits for unmarried partners seems to have been flagged up as one possibility.
Reasons for the proposals
The Government claims the change would reflect increased longevity, modern working patterns and the practice in most private sector pension schemes. More realistically, the exercise seems to be about cost-cutting and retention.
Although there are promises to improve the NHS pension scheme using some of the savings that will flow from the move to age 65, it seems unlikely that the Government has in mind a cost-neutral exercise. More likely, the change will pay for the fact that NHS pensioners, like pensioners generally, are living longer. No doubt the Government also sees the change as a useful retention incentive. Pensions taken before 65 will be lower than they are now and hence people will take longer to reach their planned retirement income. It is a useful 'double whammy' for the Government, saving money and easing long-term staffing problems at the same time.
Impact on GPs and staff
The change would mean that whereas currently the NHS pension can be taken at age 60 without reduction, in future it would be payable at 65. It will still be possible to retire at 60 (anytime from age 55 in fact) but retirement before 65 will incur an actuarial reduction. This is the same process that applies now if a doctor retires before the current normal retirement age of 60. At the moment, a doctor retiring five years early, at 55, suffers an actuarial reduction of approximately 25 per cent on pension and 14 per cent on the lump sum. We do not yet know precisely what these figures would be under the new arrangements.
Incidentally, another part of the green paper proposes that in future it will not be possible to take a pension at age 50 as now, but only from age 55 (this change may be introduced gradually, up to the year 2010).
It has long been a concern of doctors, expressed for instance at pre-retirement seminars, that if they work on until 65 then their life expectancy will diminish. However, the latest figures supplied by the Government Actuary's Department , via the NHS Pensions Agency, are actually reassuring on this particular point (see table below).
Despite the life expectancy statistics, a normal retirement age of 65 is bound to mean more GPs retiring on the grounds of ill-health if they are obliged to work for longer. The ill-health retirement arrangements of the NHS pension scheme will continue, although the precise details will need to be reviewed to reflect the later retirement age.
The NHS Pensions Agency has been quick to assure scheme members that the basic structure of the scheme remains the same ie, it will remain a final salary pension scheme for most members and a dynamised career earnings scheme for GPs. Additionally, the lump sum remains tax free, contrary to recent speculation.
Life expectancy figures for GPs
Will live to
Retirement age 60 81.7 84.9
Retirement age 65 82.5 85.5
NB Some doctors who retire at 60 will die between 60 and 65, no doubt explaining why the age 65 figures are actually better than those for age 60.