Practices will soon receive packs encouraging staff to switch to a new NHS pension. Dr Andrew Dearden answers some common questions on the move and advises GPs on their options
Why are pensions changing?
After a three-year review of NHS pension arrangements, a new pensions scheme was introduced in 2008.
Anyone who started working for the NHS after 1 April 2008, who was not already an NHS Pension Scheme member, will automatically join the 2008 scheme.
Each member of the 1995 NHS Pension Scheme – those who joined before April 2008 – will also have a one-off opportunity to transfer their pension benefits into the 2008 scheme, under an initiative called the ‘choice exercise'.
The initiative is also open to NHS staff returners who have been away from work for no longer than five years.
How will I find out about the options?
From January 2010 to 2012, NHS Pension Scheme packs will be sent direct to practices for GPs and their staff who are eligible to change.
The exercise will be undertaken in regional tranches, starting in the South-West and moving in a clockwise direction around the UK. It will also be done in two waves, with the over-50s first, and then the under-50s in the second wave.
In England and Wales packs will be sent to practices. In Scotland they will be sent to members' homes.
The pack will contain the member's current pension statement and personalised illustrations indicating what their pension benefits would look like under either of the two schemes, along with an information DVD, various leaflets and an application form.
What are the key differences between the schemes?
The key difference between the two schemes is the age for normal retirement on a full NHS pension – 60 in the 1995 scheme and 65 in the 2008 scheme.
Although it is true that most people who transfer into the 2008 scheme will retire on a higher pension at 65 than they would have got if they had retired at 60, they will have to work an extra five years to receive that pension without incurring any actuarial reduction.
What are my obligations as an employer?
If you're practising in England or Wales, you will receive the packs to hand out to all your staff members.
From the date the employer receives these packs, the member has four months to opt in – but a month of that is for the employer to ensure the member has received it. Therefore it is important to be prompt – and you are legally obliged to ensure they have received it in that time.
It is also crucial you do not offer any advice to staff on whether to opt in or not, unless you are financially qualified to do so. I am not. My advice is to hand over the pack and remain quiet.
But if your staff member is still uncertain about the best option for them, they should seek independent financial advice – as should you.
So will I really get a bigger pension when I retire (at 65) if I opt in?
Well, yes – but this will be because you'll be working for an extra five years before you can claim your full NHS pension.
It's absolutely crucial you do the maths on this and seek professional advice. And remember, there are other ways to increase your retirement fund than just opting into the new scheme.
What if I opt in, but then retire before 65?
The 2008 scheme has the same early retirement penalties or actuarial reductions as the 1995 scheme – that is, you lose about 4% of your final pension for each year you retire early.
The upshot of this is that if you opt in to the new scheme but then decide to retire at, say, 62, you are very likely to retire on less money than if you had stayed in the 1995 scheme and retired at 60.
In fact, under the new 2008 scheme, we estimate you would need to work to about 63 to begin to get more than you would have received if you had retired at 60 under the old scheme.
But what if I'm happy to work until 65 – surely I should opt in and get my bigger pension?
Again the answer is not as simple as that. There are many differing factors – your health, your plans for retirement, your own personal circumstances, your financial needs and so on. I would seriously advise scheme members to get good quality financial advice on this.
How do I make my decision?
To transfer into the new 2008 scheme, you have to formally ask within three months of receiving your pack.
If you do nothing, you remain in the 1995 scheme. If you formally reply to the choice exercise and say no, the same happens.
If a member asks a question about their choice pack, or the figures contained within it, the NHS Pensions Agency will stop the three-month ‘clock' and start it again when the figures or the enquiry have been sorted.
Remember, this is a one-time-only opportunity – you can't decide at a later date either to opt in – or, conversely, to opt out again.
What if I retire – or leave the NHS – before I get my pack?
Anyone considering retirement should urgently contact their primary care organisation or the NHS Pensions Agency to ensure they will receive their choice pack soon.
The BMA has agreed that those who are close to retirement or who have formally indicated an intention to retire will receive their packs imminently.
Further help is available on the NHS Pensions Choice website .
Dr Andrew Dearden is a GP in Cardiff and chair of the BMA pensions committeeGUIDE TO NHS PENSIONS At-a-glance guide to NHS pension options
Please click here to compare the features of the 1995 pension scheme with the new 2008 scheme to help you decide.Dr Andrew Dearden advises GPs on their pension options PULSE SEMINARS
This article is a synposis of a presentation given at the Pulse seminar Pensions and Personal Finance on 10 December 2009. To book a place on a forthcoming seminar click here.