New analysis of freedom of information data from the NHS Business Services Authority (NHSBSA), gathered by wealth manager Quilter, reveals that 209,553 members of the NHS pension scheme are losing their hard-earned pension payments due to a lack of awareness of pension scheme changes.
From 1 April 2022, the old NHS pension scheme (final salary 1995/2008) was closed, and all active members were moved to the new the 2015 scheme. After this date, members no longer accumulate benefits in the old scheme. However, a final salary link was established to ensure that any future increases in pensionable pay would still enhance the benefits from the old scheme.
The 1995 section was designed when retirement was more binary – people often worked until 60, then took their pension. Unlike the later 2008 section and 2015 Scheme, the 1995 Scheme has no late retirement factors. As such, there is no enhancement for not taking your pension at normal pension age.
Until April 2023, if you took your 1995 section benefits, you were not allowed to rejoin the NHS pension if you returned to work. Last year, the Department of Health and Social Care (DHSC) introduced significant changes to retirement flexibilities which enable 1995 section members to take their 1995 section pension benefits, continue to work in the NHS and accrue new benefits in the 2015 scheme. This was a policy designed to encourage retirees back to work.
This means there are now very few reasons for those eligible NHS pension members not to take their 1995 section benefits at normal pension age.
As this is a relatively new issue and not all members understand the rule changes or how they can benefit, there are now a significant number of members who are missing out on pension benefit payments. To make matters worse, if members do not claim the pension at normal pension age those pension benefit payments will be lost as they are not typically backdated.
There are 143,632 members of the NHS pension who are 60 years old or older and have not yet claimed their benefits from the 1995 section, even though they have reached the normal pension age of 60. Similarly, 65,921 members are 55 or older and haven’t claimed their benefits from the 1995 section, despite reaching the normal pension age of 55. In total, 209,553 members are potentially missing out on money every month.
What’s more, members taking their 1995 section benefits who want to continue working in the NHS must either partially retire or ‘retire and rejoin’ – both of which require their employer’s agreement to facilitate. Should the employer deny the request, the member could suffer a financial loss as they would be denied access to their 1995 pension benefits.
As such, Quilter is calling on the DHSC to ensure increased awareness of:
- The absence of late retirement factors in the 1995 section
- That members can effectively lose 1995 section pension payments if they don’t claim it at normal pension age
- The recent changes from DHSC to retirement flexibilities in the 1995 section that could significantly help members.
Quilter is urging the DHSC to update the outdated process that NHS pension members must undertake to access their pensions. Quilter suggests disconnecting the employer link, so the employer’s role is simply to facilitate access to the pension, rather than as a gatekeeper.
Graham Crossley, NHS pension specialist at Quilter, discusses the changes made to the NHS pension scheme, why so many people are missing out on their hard-earned pension payments, and what must be done to stop this:
How the changes have impacted NHS pension members:
“Prior to April 2022, there had been an argument for some members not to take their 1995 section benefits at normal pension age, as some members were able to continue accruing service. If a member continued working in the NHS after taking their 1995 section benefits, at that time they were not allowed to rejoin the NHS pension (2015 scheme). As such, there was an incentive not to take the 1995 section benefits at normal pension age if you were going to carry on employment in the NHS. However, this is no longer the case as the McCloud remedy put a halt to that discrimination, and since April 2023, re-joiners have been allowed to rejoin the 2015 scheme.
“Another reason for those with Special Class Status delaying taking pension benefits past normal pension age was abatement, which reduced their pension in payment if they returned to work. However, special class status abatement has now been abolished.
“In addition, we have seen the introduction of partial retirement to 1995 section benefits, which can make it even easier for 1995 section members to take their pension at normal pension age and continue working.
“It is worth noting that individual circumstances will have a bearing, there will be some 1995 section members who would benefit from not taking their 1995 section benefits at normal pension age, particularly if they are due a significant increase in pensionable pay.
The employer barrier:
“Despite the changes which intend to make things easier for NHS pension members, there remain some barriers to members taking their 1995 section benefits if they want to keep working in the NHS. The two options to take their pension are to partially retire or to ‘retire and rejoin’ – both of which require their employer’s agreement to facilitate.
“If the employer denies the member’s request, they will be causing a financial loss to the member by effectively denying access to their 1995 pension benefits, unless the member opts to take drastic action such as leaving their employer.
What must change and how members can avoid losing pension payments:
“People who are trying to take partial retirement are coming up against employer resistance in some parts of the UK. We are already seeing people missing out on their hard-earned pension benefits as a result, and it is vital that change is made to put a stop to this.
“It begs the question, therefore, whether the DHSC should explore the possibility of decoupling the employer’s position as a gatekeeper to a member’s pension benefits. This could be easily achieved by scrapping the 10% reduction in pensionable pay rule for partial retirement and amending the application process to not require the employer’s agreement.
“After all, in the private sector, an employee can take their personal pension benefits without informing their employer or getting their employer’s agreement, so why should the public sector be so different?
“If this is not deemed possible, then the DHSC should revisit the introduction of Late Retirement Factors (LRFs) into the 1995 section. This was disappointingly discounted in the consultation to extend partial retirement to the 1995 section, as the belief was that partial retirement would negate the need for LRFs.
“Ultimately, change is unlikely to come quickly, so for those already in this position or are concerned they could be missing out, it is vital to seek professional financial advice from someone with expert knowledge in NHS pensions. The rules have changed substantially in recent years, and it is vital that you are well equipped to make the best possible decisions for you to ensure you do not lose the pension payments you have spent a lifetime accruing.”
