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NHS Pension Scheme Guide

by Medics Money

How the NHS Pension works

When you joined the NHS, you automatically gained membership to the NHS Pension and were probably told the NHS Pension was a “great deal”. But why is it considered a great deal? What are the pitfalls and problems and what annual check do you need to make to ensure your NHS pension is up to date.

This article gives you a simple overview of the NHS Pension but if you want more detail then download the Medics Money guide to the NHS Pension here.

This guide contains further information on Annual allowance and the essential checks all doctors need to perform on their pension.

Join our community of 35,000 + doctors learning how to make better financial decisions and download our guide here.

What is a pension and why is the NHS Pension different?

A pension is a tax efficient way to provide an income for your retirement. Tax efficient because the employee contributions are deducted before tax, so a 20% taxpayer contributing £1 to their pension effectively only pays 80p to contribute £1 towards their pension and a 40% tax payer contributing £1 effectively only pays 60p. However, the tiering of employee contributions in the NHS effectively removes some of this tax relief for higher earners. More on that later. 

The NHS Pension is different to most other pensions – in a good way

The NHS scheme is known as a Defined Benefit (DB) pension which makes it different to most other pensions available today, which are usually Defined Contribution (DC) pensions.  

Non NHS Pensions or Defined Contribution (DC) pensions, you and possibly your employer, pay contributions into a pension “pot”. This “pot” would usually be invested and when you retire the amount of money in the pot is your pension. The value of the pot depends on the performance of your investments and once you’ve spent the “pot“ there is no more money available. Over time, inflation also effectively decreases the size of your pot.  

In Defined Benefit pensions, like the NHS pension and some other public sector schemes, you and your employer pay a contribution which can be thought of a membership fee. This membership fee buys you a pension at retirement and you will receive a defined amount of money each year until you die.  

Unlike DC in DB there is no pot to run out.  

Unlike DC in DB the pot is also has some protection from being decreased by inflation.  

Defined Contribution (DC) “normal pension” Defined Benefit (NHS Pension)
Benefits defined by contributions and size of fund at retirement Benefits defined by pre set formula of the pension scheme
Benefits depend on performance of investments Benefits based on salary and length of service
Benefits vary depending on performance of stock market & other financial products Benefits guaranteed and underwritten by HM Treasury.

How does the NHS Pension actually work?

There are actually three sections of the NHS Pension and they all work slightly differently. The amount you get can be based on your Final salary, like the 1995 section of the NHS pension. Or it can be based on your Career Averaged Revalued Earnings (CARE), like the 2015 section of the NHS pension scheme.  The NHS Pension works slightly differently for GPs and Dentists and our free guide covers this here

From April 2022 all active members are in the 2015 scheme, we will concentrate on that scheme in this article.

How much does it cost to join the NHS Pension?

Each month, depending on how much you earn a set amount is deducted from your pensionable salary.

The table below shows how much of your pensionable pay you need to contribute. The rates are due to change in line with Agenda for Change uplifts in England as per the table below.

These employee contributions have no bearing on the value of your pension and are simple a membership fee to be in the scheme. We discuss below how the value of your pension is calculated. 

TierPensionable earnings (rounded down to the nearest pound) Contribution rate from 1 October 2022
1£0 to £13,246 5.1%
2£13,247 to £16,8315.7%
3£16,832 to £22,878 6.1%
4£22,879 to £23,948 6.8%
5£23,949 to £28,223 7.7%
6£28,224 to £29,179 8.8%
7£29,180 to £43,805 9.8%
8£43,806 to £49,245 10%
9£49,246 to £56,163 11.6%
10£56,164 to £72,030 12.5%
11£72,031 and above 13.5%

The rates for Scotland are here – these are currently being consulted on with a view to changing them; 

TierPensionable earnings bandContribution percentage rate
1Up to £21,614 5.2%
2£21,615 to £25,981 5.8%
3£25,982 to £32,914 7.3%
4£32,915 to £66,0179.5%
5£66,018 to £92,423 12.7%
6£92,424 to £123,147 13.7%
7£123,148 and above 14.7%

When can I retire?

As you can see from the table, the normal retirement age at which you can retire without early retirement factors applying varies depending on which section of the pension you are in. A key point to note for those in the 2015 section is that retirement age is linked to state retirement age. Listen to the podcast below to hear why that scares us and what we are doing to mitigate it here.

Normal retirement age6065State pension age

How can I retire early? Can I buy additional pension? What's an ERRBO?

This podcast covers how to retire early and also outlines our own early retirement plans.  

What is the McCloud judgment and what do doctors need to do about it?

You can find out more about the McCloud judgement here.

NHS Pension FAQs

This article explains more about some of the valuable extra benefits of the NHS Pension. 
This is a personal decision, but this article explains more. 
This depends on your unique circumstances, but you should be aware that the NHS Pension can be paid into an overseas bank account.  
What constitutes your pensionable salary can get complex, but for Junior Doctors its your basic pay up to 40 hours per week, which excludes overtime, weekends, enhanced rate hours or locum hours paid.   For Consultants the first 10 Programmed Activities (PAs) of a consultant contract are pensionable – additional PAs are not. Responsibility Payments are often negotiable, and you are still able to pension:  
  • On Call Supplements  
  • London Weightings   
  • Some Clinical Excellence Awards, Merit Awards and Discretionary Points. 
This depends on your unique circumstances and often the answer is you need both. In general accountants help to calculate the tax due and Independent Fianacial Advisers help you plan for the future by projecting benefits and advising on what pension is right for you. This article gives more detail but if you still have questions, contact us here.
The NHS pension is extremely complex and needs specialist advice. Which is exactly why we started Medics’ Money. We have verified and selected the best NHS Pension experts and our unique algorithm matches your unique requirements to suitable advisers from our nationwide network. To find out why over 10,000 doctors have used Medics Money to find an expert adviser who actually understands the pension click here.  If you want a report to check the accuracy of your NHS Pension report click here
The NHS pension is one of the best around. But it's also become byzantine in its complexity and there are many pitfalls to catch the unwary including
  • Inaccurate NHS Pensions records.
  • Punitive annual allowance tax charges
  • Complex Scheme Pays compensation. 
Why not start with the basics and listen to this podcast. And this article outlines why you probably should not leave the NHS Pension.
Probably both, which is why Medics’ Money is such a great place to find advice as we have the best specialist medical accountants and independent financial advisers all in one place, all working together to help doctors like you. A simplistic view is that accountants calculate your historic tax liabilities and can advise on this. IFAs calculate what you should do in the future including whether you should opt out of the NHS Pension. This article provides more detail. 
Each year at a very minimum all doctors should download a Total Rewards Statement and reconcile these figures with your March payslip.  https://www.totalrewardstatements.nhs.uk It's also good practice to get a copy of your NHS Pension membership statement and check it carefully. Higher earners should also request an annual allowance statement each year. Our podcast has a wealth of information on the NHS Pension. Listen here. Our ebook contains more detail on the pension.