What doctor or dentist doesn’t find the better, more varied work/life balance of part-time working enticing? Of course one of the downsides is a reduced income with, you would think, an equivalent reduction in your pension and annual pension contributions. Not so!
The 1995 NHS Pension Scheme rules for part-time medics
With the old 1995 NHS Pension Scheme, there were two variables that influenced the size of your pension: your salary and time.
Your salary
Your pension was based on the full-time equivalent salary for your post, not your actual earnings.
Time
Your pension was then time adjusted to reflect your part-time position i.e. you would be credited with ½ a point for a year’s service on a part-time basis compared to a full point for a year’s service on a full-time basis.
For example, let’s say Karen earns £45K working as a part-time NHS Consultant, a position that earns a full-time salary of £90K. All other things being equal, the value of her pension would be half what it would be if she worked full-time.
Your pension contributions
Your full-time equivalent salary also came into play when determining how much you contributed to your pension each year. You may need to scroll left and right if you’re viewing the table below on a small screen.
| Tier | Full-Time Pensionable Pay¹ | Gross Contribution Rate² 1 April 2015 to 31 March 2019 |
|---|---|---|
| 1 | Up to £15,431.99 | 5% |
| 2 | £15,432.00 to £21,477.99 | 5.6% |
| 3 | £21,478.00 to £26,823.99 | 7.1% |
| 4 | £26,824.00 to £47,845.99 | 9.3% |
| 5 | £47,846.00 to £70,630.99 | 12.5% |
| 6 | £70,631.00 to £111,376.99 | 13.5% |
| 7 | £111,377.00 and over | 14.5% |
¹ Used to determine contribution rate; ² Before tax relief
For example, even though Karen is working part-time, her £90K full-time equivalent salary means she would have contributed 13.5% (gross) into her 1995 NHS pension each year.
In other words, under the 1995 NHS Pension Scheme, her pension contributions would be the same whether she was working part-time or full-time.
Your pension value
Under the 1995 NHS Pension Scheme, it was the time variable that affected your pension value. In Karen’s case, the value of her pension would be half what it would be if she worked full-time.
Not brilliant but largely fair enough given that the value of your pension was based on your final full-time equivalent salary, and the final salary rules at the point of retirement.
The 2015 NHS Pension Scheme rules for part-time medics
Under the 2015 NHS Pension Scheme, the salary valuable is based on your career average salary (not your final salary) and the time variable has, to a degree, been removed.
Many would argue this makes it a fairer system, if not as generous as the 1995 Scheme, but is it?
Your salary and pension value
Your pension is based on your career average superannuated income. If you work part-time, your earnings will be less than if you worked full-time and this is reflected accordingly in the value of your pension.
Your pension contributions
Even though your pension value is now based on your actual earnings, your pension contributions are still based on your full-time equivalent salary.
For example, under the 2015 Scheme, Karen’s £45K part-time salary (not her £90K full-time equivalent salary) is reflected in the value of her NHS pension, yet she has to continue paying contributions of 13.5% into it.
In other words, by working part-time, she has to pay a lot more for her retirement benefits than she would if she worked full-time on the same salary.
What should you do?
The NHS Pension Scheme seems to be having its cake and eating it so to speak. While I’m told the BMA are aware of this issue and are lobbying to alter it, I can’t see this happening anytime soon.
The decision to work part-time is often one forced on us by circumstances or perhaps ill health. But, if it’s a lifestyle choice, it’s advisable to fully understand the impact your decision has on your pension before you go dropping those PAs or sessions.
It also doesn’t change the fact that the NHS Pension Scheme is still excellent value for money. Is the NHS Pension Scheme still good value for money? >
Do you think the lifestyle benefits of working part-time still outweigh the financial implications? Let us know by adding a comment below.
My wife has recently returned to work as a Specialty Doctor after a 10 year career break. She is working 2 days a week so earns £16k as WTE salary is £40k. She is paying 9% into the 2015 scheme and getting no tax relief this year as only started half way through the year. Will get 20% tax relief next year. As you say it seems unfair to have to pay the higher contributions but due to the employers contributions and Other NHS pension benefits I can’t imagine any private scheme could get close so thought it best to stick with it. She does also have 5+ years in the 1995 scheme and if she stays in this post her final salary would eventually be higher than it was when she worked previously but I’m not sure if it will be used for the final 1995 benefits calculation when she had 10 years out?
Hi Ron
I think your wife would be well advised to stay in the scheme. With reference to service within the ’95 scheme, the final salary will be being increased by CPI every year up until retirement and then beyond. It may be less than your wife’s “current” final salary but maybe the difference will not be that great in the end?
Best wishes
Owen
I get out of the nhs pension because I calculated I was paying £1000 more on year of my £30000 compared to some one on lower band earning exactly the same salary because they are on a lower band. The 2015 system is bad for all nhs employees it means we work 12 years more than some one on 1995 contract. It is worse for people who work part time. I do not think it is value for money because even when you it comes to retirement at 68 they only allow you to take 25% tax free. The plan is we drop dead before we enjoy a big chunk of our contributions
Hi there,
The NHS pension may not be as good as it was but its still a great scheme. Like all schemes there are nuances which lead to some members being less well off than others – the salary banding is just such an example.
You get tax relief on the pension contribution (you just don’t see it on your payslip) at your highest rate of income tax. You don’t actually, therefore, pay 9.3% but 80% of this amount ie 7.44%.
Your employer (the NHS trust you work for) is required, from this financial year, to contribute 20.6% of your superannuable salary towards your pension. Your actual total combined gross contribution will be approximately 30%. To put that in context – if you were working in a private environment and wanted to try and create the same level of benefits that the NHS ultimately gives you, you would need to contribute £9000pa, you currently contribute £2790 gross per annum/£2232 net per annum!! It’s quite a difference!
You can access benefits before age 67/68 – it’s just that you will have an actuarial reduction imposed because of your “early” retirement.
Hope this clarifies a few things.
Best wishes, Owen
Hi I am in the 1995 scheme and age 62 I have recently gone part time. I do not yet draw my nhs pension and am worried it will be based on my part time hours am I best to take it now, only been part time for a few months.
Thanking you
Hi Ann,
The 1995 scheme is based on the full-time equivalent salary, and the pension is based on the best year’s income in the previous three years. You need to be careful if you have dropped any additional work that is superannuated such as on-call. It may be worth considering contacting the pensions agency to request your income over the last three years to help you make an informed decision.
Best wishes, Owen