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The waiting game

High price to pay for added years pension benefits

Simon Dickerson director of Medical & Financial provides explains the new additional pension scheme and the main differences it has to the added years scheme it has replaced.

Simon Dickerson director of Medical & Financial provides explains the new additional pension scheme and the main differences it has to the added years scheme it has replaced.

Most GPs who have worked in the NHS will be aware of the added years scheme. The removal of this scheme led to concern for many members and a rush to apply for added year's benefits prior to the 31st March deadline.

Details of the replacement, the "additional pension" scheme, are now available. Doctors who applied for added years but are yet to start them now have a decision to make. Whether to continue with the purchase of added years, or consider the additional pension scheme.

The additional pension scheme offers considerably more choice and flexibility than the added years scheme. Benefits are purchased in tranche's of £250 up to a maximum additional pension of £5000 per annum. These benefits are index linked each year. There is no automatic tax-free lump sum however this can be taken by commuting part of the pension.

Under the old added years scheme "notional" extra years service were purchased in exchange for an additional fixed percentage of NHS earnings. This could lead to considerable uncertainty. The "notional" years purchased were an average of lifetime NHS earnings. Any change in working life or considerable change in NHS remuneration could have a significant erosive impact upon the benefits purchased. The additional pension scheme removes these concerns.

The benefits purchased are known from outset. The cost of purchasing is fixed for the first four years. After this they are subject to a regular review where costs may be increased. It is possible to purchase benefits in one of two ways - either through a lump sum payment or via a monthly payment plan.

If payments are made monthly you can choose to pay over any period up to 20 years although payments must cease by normal retirement

It is significantly cheaper to purchase benefits via lump sum. As an example, a 45 year old male doctor, purchasing £1,000 a year in extra pension would pay a total of £19,872 if he chose to pay over the 15 years until retirement. If those same benefits were purchased as a lump sum the cost would be £12,880.

Unlike added years, the additional scheme has the option of not buying periphery benefits that would not get used, for example a pension can be purchased without spouse's benefits if these are not appropriate. The new scheme also differentiates between men and women, although this does make benefits more expensive for female applicants.

It isn't all good news however. As predicted the cost of the new scheme is significantly greater. A 40-year-old male will pay in the region of 6% more for same benefits under the new scheme, a 50-year-old male closer to 14% more. The cost for female doctors is greater still.

Spouse and dependant benefits are also reduced. Added years provided spouse and dependants pension of up to 100% of members pensions, but the new scheme has an additional charge to add benefits on. These benefits range from 37.5 to 75% of member benefits.

So, to summarise, the additional pension scheme is significantly more flexible than its predecessor. But there is a price to pay, literally, for that.

For many the old added years scheme was expensive. The new scheme is more expensive still. However, in times of investment uncertainty the guarantees it provides will be attractive to many.

Simon Dickerson of Pulse Financial Consultants. Added years pension offers many extra benefits, but they come at a price Simon Dickerson of Pulse Financial Consultants How to contact Medical & Financial

Medical & Financial can be contacted by email at

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