Costs and Contributions
What is It?
The NHS pension is a ‘defined benefit’ scheme. This means that you contribute a percentage of your salary to ‘buy the right’ to a pension and at the date of retirement you will receive an income and maybe a lump sum depending on the Scheme you are in and the choices you have made. The amount of pension you will get will be dependent upon many factors, also driven by which pension you are in, the 1995 or 2008 Sections of the old Scheme, the 2015 Scheme, or maybe two or all of these.
What Do You Actually Pay?:
From 1st April 2012 seven tiers for contribution rates were introduced. These limits have been rising steadily over the last few years. The current rates are listed below:
| Tier | Pensionable Pay (whole–time equivalent) | Contribution Rate from 2015/16 TO 2021/22 |
|---|---|---|
| 1 | Up to £15,431.99 | 5.0% |
| 2 | £15,432.00 to £21,477.099 | 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% |
Tax arrangements
NHS Pension Scheme members will receive tax relief on their pension contributions up to a certain amount. This is because contributions are taken from pay before tax is taken off, therefore contributions reduce the amount of pay subject to tax.
The tax relief available for pension savings is subject to certain limits known as the annual and lifetime allowances, these are restrictions put in place by HMRC.
Key Points
For the majority of members your contribution rate will be based on your whole-time equivalent (WTE) rate of pensionable pay received during the pension/tax year unless your circumstances have changed.
If you only started to contribute to the Scheme part way through a year , the pensionable pay used to set your rate will be based on a composite pay calculated on what you received in each period. Please remember this only affects people who started a new pensionable employment/re-employment, who joined the Scheme for the first time, or re-joined the Scheme after a break in membership, part way through the pension/tax year.
What if You Change Your Job?
If you change employers, receive a promotion etc. on or after the 1st April; your contribution rate will be reassessed based on the remainder of your previous annualised WTE pensionable pay.
Once your rate is set for the current year it is generally ‘fixed’ unless you are promoted, you receive a pay increase, take on extra duties, or are permanently moving from night to day duty. Fluctuations in part time hours will not change your contribution rate as the rate is always set on a full year, full time equivalent pay basis.
Technically a change in pay (other than due to an unexpected change in duties or one unlikely to persist for at least 12 months) would cause an in year re-assessment of your contribution tier. So if your original rate has been assessed using your pensionable pay (notional whole time for part time employees) for previous year ending 31st March and your pay then increases on or after the 1st April, the reassessment should be done.
If you receive a pensionable increase over and above the national award, a reassessment of your contribution rate would be required and may result in you being allocated a higher contribution rate.
It is important to remember that if you work part-time then the full-time equivalent pay for your job will be used to assign you to the correct contribution rate. For example, if you earn £18,000 working half the standard time then the full time equivalent ‘pensionable pay’ would be £36,000.
The pensionable pay that your rate is based upon will include all pensionable allowances. If you work part-time both your pensionable allowances and your basic pensionable pay will be scaled to the full time equivalent.
The contribution rate is applied to all of your pay. For example, if you are an employee earning £50,000.00 you will pay the relevant percentage on the full £50,000.00
If you have multiple employment contracts a separate contribution rate will be set for each contract based on the full time equivalent pensionable pay for each job.
If you would like more information on this subject we recommend you contact us.