Why new pension proposals bring mixed fortunes
After long drawn out and secretive pensions negotiations, we finally have an outline idea of the proposals for the new NHS pension scheme and the chan-ges to the existing scheme, both scheduled to start in 2008. As with the Chancellor's budget, the devil will be in the detail.
All new entrants to the NHS from 2008 will automatically enter the new scheme. All of us currently working for the NHS, not including those deciding to beat a hasty tactical retreat and retire by 2008, will have the option of moving lock stock and barrel to the new scheme.
At the moment there is neither the detail nor the need to discuss whether any individual GPs will be better off opting in to the new scheme. It is more important to look at the chan-ges proposed for the old scheme.
The good news here is in many respects tempered by the bad. Most importantly retirement on full pension at age 60 will remain, but the cost will increase for all GPs.
We all currently pay 6 per cent employee contributions on our superannuable earnings. This will rise to 6.5 per cent for those on incomes up to £60,880 a year, 7.5 per cent on incomes to £100,000 a year and 8.5 per cent on incomes £100,001 upwards. Tax relief (40 per cent for most) will continue to soften the blow somewhat.
The earnings cap for younger GPs will be lifted, meaning that from 2008 the full value of superannuable earnings can be pensioned (this year's limit is £108,600).
However the added years scheme, now considered over-generous, will close to new applicants; the proposal wording implies this will happen from the end of 2007. This scheme has been a great way to top up pensions, especially for those starting medicine later or with gaps in service.
It has also been a great way to gain full benefits from the main scheme. There will be a rush of last-minute applications, so review your needs urgently.
There are benefit improvements, such as six months' (instead of three months') full pension to nominated partner/
dependants for all following death in service. Also if your spouse remarries after your death they will still receive a pension (currently this would stop).
It will be possible for all GPs to increase the level of their lump sum from three times the annual pension to 25 per cent of the value of the pension. The extra amount will be docked from the pension at a rate of £1 pension a year for every £12 extra lump sum.
GPs will need to think very hard about giving up inflation-linked pension for more money upfront.
A final salary pension remains for employed GPs, but the biggest question-mark hangs over the 'improvement' to dynamisation for principals. Instead of reflecting each annual pay rise, the proposal is that each year's dynamisation factor will match the cost of living index, plus 1.5 per cent.
On the one hand this will guarantee a small but steady
real increase in pension value in the long-term. On the other, it will remove the chance of a dramatic short-term rise in future pension value, such as that seen over the last two years.
We should wait for clearer explanation from the BMA before passing judgment.
The consultation period takes place between September and November. Have a look at the documents currently available on the BMA website (www.bma.org.uk) and the NHS employers' website (www.nhs employers.org).
Also follow the press, as a lot more will be written.
Send at least one representative to the roadshows. If we are convinced that this is the best we can hope for in the current pension climate, it may be difficult to reject this deal.