The NHS Pension Scheme is a fundamental part of the financial security for healthcare professionals across the UK. As a defined benefit pension scheme, it provides a guaranteed income in retirement based on earnings and years of service. Contributions to the NHS Pension Scheme are made from after tax income, so these contributions are not taxable within the scheme. Unlike private pensions which rely on investment performance, NHS pensions offer stability, so retirement planning is more predictable.
Having an online account is crucial for accessing personalized information and support related to the NHS Pension Scheme.
Defined benefit fund for NHS employees
Unlike defined contribution schemes where retirement income depends on investment performance, this scheme provides a predictable and stable income. The amount you get in retirement is based on your salary history and number of years served in the NHS, so a solid financial foundation for your post-work life.
As a defined benefit fund it provides a guaranteed income in retirement based on an employee’s salary history and years of service. This scheme is managed by the NHS Business Services Authority (NHSBSA) and regulated by the NHS Pension Scheme Regulations.
Secure retirement income
One of the biggest benefits of the NHS Pension Scheme is the security it offers. Members can rely on a guaranteed income in retirement which is based on their career average revalued earnings (CARE). This means your pension will reflect your entire career’s earnings, so a fair and stable income to plan your retirement.
Eligibility and membership
Eligibility for the NHS Pension Scheme is straightforward. Most NHS employees are automatically enrolled, so broad coverage across the health sector. But there are criteria to meet and some employees can opt out. Once a member you can access your pension benefits on retirement or when you leave NHS employment, so flexibility and security.
How the NHS pension scheme works
The scheme is funded by contributions from both NHS employees and employers. Members contribute a percentage of their pensionable pay and the NHS as the employer also contributes. These contributions are pooled and used to pay pensions to retired members.
These contributions have annual caps and exceeding these caps can result in additional taxes such as the Division 293 tax and excess concessional contributions charges. Non concessional contributions are made from after-tax income and are not taxed within the fund but have annual caps and exceeding these caps can result in penalties.
As of 1 April 2022 all active members were transferred to the 2015 Scheme replacing previous final salary based schemes with a career average revalued earnings (CARE) scheme. This means pension benefits are calculated on the average salary over a member’s NHS career rather than their final salary so the system is fairer and more sustainable.
Membership categories
NHS Pension Scheme members fall into three categories:
- Active members – Currently contributing to the scheme through their NHS employment.
- Deferred members – No longer paying into the scheme but have pension benefits preserved for future withdrawal.
- Pensioner members – Already receiving pension payments.
As of the latest data the NHS Pension Scheme has over 1.6 million active members so it’s a big scheme within the health sector.
Employer contributions
Employers play a big role in the NHS Pension Scheme by making significant contributions. The employer contribution rate is currently 23.7% of an employee’s pensionable earnings with 14.38% paid directly by NHS employers and the rest centrally funded by NHS England. These contributions are tax deductible so help to fund the scheme’s benefits and sustainability. This is a big commitment from employers to the financial wellbeing of NHS staff.
Employee contributions
Employees also contribute to the NHS Pension Scheme with rates based on their pensionable earnings. For most members the contribution rate is 5.2% to 12.5% depending on their salary. These contributions are deducted from your salary and are eligible for tax relief so are a tax efficient way to save for retirement. Members can also make additional voluntary contributions to boost their pension pot and increase their retirement income.
NHS staff contribution rates
NHS employees contribute based on their pensionable earnings. From 1 April 2024 the contribution rates are:
- Up to £13,259 – 5.2%
- £13,260 to £26,831 – 6.5%
- £26,832 to £32,691 – 8.3%
- £32,692 to £49,078 – 9.8%
- £49,079 to £62,924 – 10.7%
- £62,925 and above – 12.5%
These rates mean those on higher salaries contribute more to their pension and lower earners have lower contributions. Government contributions play a big role in supporting the NHS Pension Scheme particularly for low income earners by providing financial incentives to save.
Employers also contribute significantly. From April 2024 employer contributions are 23.7% of pensionable pay but only 14.38% is paid by NHS employers, the rest is centrally funded by NHS England.
Employer contribution rates 2025/26
For 2025/26 the transitional approach to employer contributions which has been in place since 2019/20 will continue. Employers need to maintain a contribution rate of 14.38% of pensionable pay. This is to provide stability for the scheme and its members. Employers should ensure their payroll systems reflect this rate.
NHS pension changes
The NHS Pension Scheme has changed significantly in recent years to make it fairer and more sustainable.
- 2022 transition to the 2015 Scheme – To address age discrimination in previous schemes all active members were transferred to the 2015 CARE Scheme which bases pension benefits on career average earnings.
- Retirement flexibility – Changes allow members to drawdown part of their pension and continue to work, for those who want to reduce hours not retire fully.
- Tax changes – The annual allowance for pension growth increased to £60,000 in April 2023, reducing the risk of higher tax charges for doctors and senior NHS staff. It’s important to understand different tax regulations and seek tax advice to navigate your obligations.
Recent developments in the NHS pension scheme
The NHS Pension Scheme has seen several updates and proposed changes to make it fairer and more sustainable. It’s important to stay informed to make informed decisions about your retirement planning.
Proposed changes effective from April 2025
In December 2024 the Department of Health and Social Care launched a consultation on proposed changes to the NHS Pension Scheme regulations which will take effect on 1 April 2025. These changes include:
- Overtime Pensionability: A retrospective change to define overtime in the 2015 Scheme as pensionable up to whole-time equivalent hours.
- Member Contributions During Absence: Clarification of the calculation method for member contributions when there is a reduction in pay during periods of absence.
- GP and Non-GP Provider Pensionable Profits: Amending the regulations for annual certificates of pensionable profit for General Practitioners and non-GP providers.
These changes aim to resolve ambiguities and ensure the scheme is fair and transparent for all members. The consultation period closed on 4 February 2025 and the department is currently reviewing the feedback before finalising the changes.
Tax law changes and deadlines
Recent pension tax changes include:
- Annual Allowance Increase: The standard annual allowance which limits tax-free pension savings growth has been increased to £60,000. Exceeding this limit may result in tax charges.
- Reporting Deadlines: Members who incur an annual allowance tax charge must report it to HMRC by 31 January following the tax year in which the charge arises. For 2023/24 tax year the deadline is 31 January 2025. If an RPSS is received late members have three months from the statement’s date to take action.
Pension benefits
Understanding your entitlements
As a member of the NHS Pension Scheme, you are entitled to a range of benefits that can provide financial security and support in retirement. Understanding your entitlements is crucial to making the most of your pension savings. Here are some key benefits you may be eligible for:
- A guaranteed income in retirement: Your pension is based on your salary and years of service, ensuring a stable and predictable income.
- A tax-free lump sum: At retirement, you can take a portion of your pension as a tax-free lump sum, providing immediate financial flexibility.
- Inheritance options: Your pension can be inherited by a spouse or partner, offering continued financial support for your loved ones.
- Flexible lump sum options: You have various options for taking a lump sum in retirement, including annuities and lump sums, allowing you to tailor your retirement income to your needs.
- Retirement planning tools: The NHS Pension Scheme offers an online calculator to help you estimate your retirement income and plan effectively.
It’s essential to review your pension benefits regularly to ensure you’re making the most of your entitlements. You can use the NHS Pension Scheme’s online calculator to estimate your retirement income and plan for your future.
Applying for your pension
Steps to access your benefits
Applying for your NHS Pension is a straightforward process that requires some essential steps. Here’s a step-by-step guide to help you access your benefits:
- Check your eligibility: Ensure you meet the eligibility criteria for the NHS Pension Scheme, including your age and service.
- Gather required documents: Collect all necessary documents, including your NHS Pension Scheme membership number, National Insurance number, and proof of identity.
- Complete the application form: Fill out the application form, which can be downloaded from the NHS Pension Scheme website or obtained from your employer.
- Submit your application: Return the completed application form to the NHS Pension Scheme, along with any required supporting documents.
- Receive your pension award: Once your application is processed, you’ll receive a pension award letter outlining your entitlements and any next steps.
It’s essential to apply for your pension in good time to ensure you receive your benefits when you need them. You can contact the NHS Pension Scheme for guidance and support throughout the application process.
Scheme governance
How the scheme is managed
The NHS Pension Scheme is governed by a range of bodies and regulations that ensure the scheme is managed effectively and in the best interests of members. Here’s an overview of how the scheme is managed:
- NHS (Scotland) Pension Board: Responsible for governance of the NHS Pension Scheme in Scotland, ensuring compliance with regulations and best practices.
- NHS Pension Scheme (Scotland) Advisory Board: Provides advice on the NHS Pension Scheme, helping to shape policies and practices.
- Regular reviews and updates: The scheme is subject to regular reviews and updates to ensure it remains fit for purpose and meets the needs of its members.
- Regulatory framework: Governed by a range of regulations, including the NHS Pension Scheme Regulations and the Pensions Act 1995, ensuring legal compliance and protection for members.
- Experienced management team: The scheme is managed by a team of experienced professionals who are responsible for ensuring the scheme is administered effectively and efficiently.
The NHS Pension Scheme is committed to transparency and accountability, and members can access a range of information about the scheme’s governance and management.
Retirement options
NHS Pension Scheme members have several retirement options:
- Normal retirement age – Linked to state pension age (usually 66–68) at which full benefits are paid.
- Early retirement – Members can take their pension from age 55 but benefits are reduced for early access.
- Partial retirement (drawdown) – From age 55 members can take up to 100% of their pension and continue to work and contribute to their pension.
- Ill-health retirement – Available for those who are permanently unable to work due to medical conditions.
- Pension sharing – In the context of divorce, pension assets can be divided between partners, ensuring both parties receive a fair share of the pension benefits.
Understanding the McCloud remedy and its implications
The McCloud judgment found age discrimination in the transitional protections of public service pension schemes including the NHS Pension Scheme. In response the government has introduced the McCloud remedy to fix this issue. Key points include:
- Rollback of Service: Affected members will have their service between 1 April 2015 and 31 March 2022 reassigned to the legacy 1995/2008 Scheme. This adjustment known as ‘rollback’ may increase final salary benefits while decreasing career average benefits so members need to make informed decisions at retirement.
- Annual Allowance Implications: The rollback may change pension growth calculations for the remedy period and may affect annual allowance tax liabilities. Members will receive Remediable Pension Savings Statements (RPSS) detailing these changes and will have three months from receipt to address any tax implications using HMRC’s ‘Calculate your Public Service Pension Adjustment’ tool.
Future changes
Discussions are ongoing about potential changes to public sector pensions including:
- Alternative salary vs pension trade-offs – Some proposals suggest allowing NHS staff to take higher salaries in return for lower pension benefits to help recruitment and retention.
- More pension flexibility – Changes may be made to help senior NHS staff avoid tax charges on pension growth.
Proposed policy changes affecting public sector pensions
Discussions are ongoing about potential policy changes that may impact public sector pensions including the NHS Pension Scheme:
Salary-Pension Trade-Off: Some proposals suggest public sector employees be offered higher salaries in exchange for lower pension benefits. This would address recruitment and retention issues without increasing the overall cost to taxpayers. However, there are concerns about the long-term impact on retirement security.
- Tax Relief Changes: There have been thoughts about changing pension tax relief for higher earners. But recent reports say plans to reduce tax relief for those earning £50,000 or more per year have been scrapped due to the impact on public sector workers including NHS staff.
Review your pension
With ongoing changes it’s vital for NHS staff to check their pension statements and understand how changes will affect them. The NHS Pension Scheme has online tools and seeking advice from a financial professional will help you make the most of your retirement benefits.
Get in touch for support with your pension
Understanding and maximising your NHS pension can be complex but making sure you get the full benefits of your contributions is crucial for a secure retirement. At Diamond Accounts we specialise in helping NHS professionals navigate pension rules, tax implications and retirement planning.
Contact us today for expert advice on your NHS pension.