More information and explainer video of what the 1995 Section of the NHS Pension is, and how it affects you.
Watch Explainer Video here
This was the original section of the NHS pension, and was available for new members until 2008, and was closed completely at the end of March 2022, when everyone was moved into the 2015 scheme.
This section was what is known as a final salary scheme. What this means is that the pension you claim will in part be based on your last salary. Something important to understand is that although you are no longer an active member of this old section, it will not be the last salary you are on when you were. It is your final salary before you claim your pension.
More specifically, NHS Business Service Authority, NHS BSA will take the last day of your employment and then count back 365 days continuous service, missing out any breaks that then becomes year one. They do this two more times. That’s your last three years. Then they add up the three lots of 365 days salaries and pick the best one.
We said earlier, it’s in part your final salary. That’s because the other element used to work out how much you will get is time taken. From the first day you signed up to the scheme, not counting any breaks and adding up part time and full time periods. You will end up with a total amount of years and days known as reckoning service.
Here’s the technical bit. You take this time and divide it by 80. The reason it’s 80 is that this is the fraction used to calculate the 1995 section. Then multiply that by the final salary, which then gives you your annual or your gross pension. This is paid monthly straight into a bank account that you choose after any income tax you owe has been deducted.
With regard to tax. Unfortunately, pensions are treated as income, technically unearned income, but still income and therefore added to all others earned interest, rental, etc. and taxed under the current income tax rules. You are left with the net amount.
There is an automatic lump sum built into the 1995 section. This is done by taking some of your pension and paying it upfront as a one time tax free payment to work out what that is. For nearly every member you take the amount of annual gross pension we outlined earlier and multiply that number by three. That’s what you will receive. You can increase the lump sum if you need to. For every 1 pound of pension you give up. You will receive an extra 12 pounds of lump sum. Please be aware that over a certain level the lump sum may be taxed. This very rarely happens, but take advice before you take too much.
So when can you claim your 1995 section benefits? The normal pension age is 60. At this time you get the full benefits you have built up. There are a couple of important exceptions to mention. One, if you hold special class status, meaning you are a nurse, physiotherapist or mental health officer who joined before April 1995 and have not had a break in service of more than five years until your transfer into the 2015 scheme. Then you can take the full benefits at age 55. Secondly, every member can ask for the 1995 section to be paid early from age 50. If you joined before April 6th, 2006 55 thereafter, which is a number of years before normal pension ages.
This is allowable. However, what you’re saying is, can you pay me the pension longer than was intended? The answer will be yes, but you’re not going to get the same pension at 50 or 50 1 or 52, etc. that you would have received at the normal pension age. It will be reduced to allow for the extra time. This is known as an actuarial reduction. Doing this will also affect the lump sum as. Remember it’s based on a multiple of the pension. When you claim your pension, the date of your retirement is when the lump sum is sent to you. And then 30 days later, the first month of the annual pension net of any tax is paid. But you do not have to retire to take your 1995 benefits from October 2023. You can decide that you want to change the balance in your life. Do something else with part of your time, and fill the gap in your income or part of it with your pension. Once you have reached the minimum pension age, remember that this was either 50 or 55.
You can take some or all of your 1995 section benefits with no need to leave your job. By some we mean between 20% and 100% of the pension you have built up. At the same time, you can also continue to build up your pension as a member of the 2015 scheme. This now makes all parts of the NHS pension have true flexibility with this drawdown facility.
For those that want to still retire and return to the NHS. The ability to do this after a break of just 24 hours from their previous job, and work as many hours as they want and have been offered. Removing the 16 hour limit for the first month after returning was also made permanent from October 2023.
If you want to know more about what we have covered here, the details of how any of it works, how your contributions are calculated, how the annual or lifetime allowances may still tax your pension, how to claim or any aspect of your pensions. Then please contact us at the Pension Support Service. Making pensions make sense.