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COVID-19 and the NHS Pension Scheme

Details on how the COVID-19 bill affects those in NHS Pension Scheme and their ability to return to work, including the impact on pension tax.

23 March 2020

Staff in receipt of their NHS Pension Scheme benefits 

It is important to note that all pension and re-employment income is subject to income tax, changes in pensionable pay may affect the level of NHS Pension Scheme contributions that employees pay. 

More information is available on the NHS Business Services Authority (NHS BSA) website. 

The COVID-19 bill will provide powers to suspend the 16-hour rule, which currently prevents staff who return to work after retirement from the 1995 NHS Pension Scheme from working more than 16 hours per week in the first four weeks after retirement. The bill also provides powers to suspend abatement for special class status holders in the 1995 scheme. It also suspends the requirement for staff in the 2008 Section and 2015 NHS Pension Scheme, to reduce their pensionable pay by 10 per cent if they elect to draw down a portion of their benefits and continue working.  

These measures will allow skilled and experienced staff who have recently retired from the NHS to return to work, and will also allow retired staff who have already returned to work to increase their commitments if required, without having their pension benefits suspended.

Staff who retire from the 1995 Section and return to work are unable to re-join the NHS Pension Scheme, but employers must provide an alternative pension arrangement in line with auto-enrolment legislation. Staff in the 2008 Section or 2015 NHS Pension Scheme can re-join the scheme while in receipt of their benefits and build further pension. Such eligible staff will be auto-enrolled into the NHS Pension Scheme on their return to work but can opt out if they wish. 

Impact of pension tax on staff increasing their hours and performing additional sessions

The government recognised that the tapered annual allowance has caused many doctors to turn down extra shifts for fear of high tax bills.

The Chancellor confirmed at the Budget on 11 March 2020 that both annual allowance taper thresholds will be increased by £90,000, removing anyone with income below £200,000. The measure will remove up to 98 per cent of consultants and up to 96 per cent of GPs from the taper altogether, based on their current NHS income. From 6 April 2020, staff can earn an additional £90,000 before reaching the new taper threshold. This tax measure applies to everyone, including senior managers and clinicians within the NHS. More information can be found on the GOV.UK website.

For the remainder of the 2019/2020 tax year, NHS clinicians can take advantage of a special scheme implemented by NHS England and NHS Improvement to preserve clinical capacity amid the increased pressure on services during the winter period. The scheme compensates NHS clinicians at retirement for the effect on their pensions of annual allowance tax charges incurred in 2019/2020.

The NHS Pension Scheme rightly provides generous retirement benefits for NHS staff. Where this means tax is incurred, then the ‘Scheme Pays’ facility provides a proportionate way to settle the tax charge without needing to pay cash up-front. Staff will still have built up valuable pension benefits after the Scheme Pays charge has been deducted. Further information on Scheme Pays can be found on the NHS BSA website

Employers in the NHS are well placed to support doctors in understanding their tax position and how their NHS work can best serve their financial interests. Some NHS trusts already provide access to tailored information and expert advice, and the Department of Health and Social Care, NHS England and NHS Improvement and NHS Employers will work together to help employers engage with staff in managing the tax implications of their NHS work. It should be noted that NHS organisations cannot provide tailored financial advice, which should be accessed through an independent financial advisor. 

Access to the NHS Pension Scheme for temporary staff

If staff hold a contract of employment with an NHS employer and are on payroll, they will be auto-enrolled into the NHSPS unless they choose to opt out. Staff employed through a third-party are not eligible to join the scheme. 

Death in service provisions for members of the NHS Pension Scheme

Individuals that are actively contributing to the NHS Pension Scheme are entitled to death in membership benefits, including life assurance and family benefits. The scheme provides a lump sum and pension benefits to eligible dependants.

For individuals that have previously contributed to the scheme and accrued benefits but are no longer actively contributing, these benefits may no longer be payable or, depending upon the circumstances, a lower amount may be payable on death.

NHS Employers has produced a briefing that outlines the current death in pensionable membership provisions under the NHS Pension Scheme, and details the lump sum and family benefits that are payable on death to members from the 1995 Section, 2008 Section and the 2015 Scheme.

Access the pensions FAQs below including information about staff returning to work, deferring a retirement decision and the impact on auto-enrolment.

  • 1. What is the impact on NHS pensions for staff who have already accessed their pension and are looking to return to work or increase their commitments?

    If staff have already taken their pension, the government has removed any restrictions on the amount of work they can do without losing any of their pension during the emergency. These measures will allow skilled and experienced staff who have recently retired from the NHS to return to work, and they will also allow retired staff who have already returned to work to increase their commitments if required.

    • If they retired from the 1995 NHS Pension Scheme, they will no longer be limited to having to work 16 hours a week in the first four weeks after retirement. Suspension of this rule allows members to return immediately to work after taking a minimum 24-hour retirement and continue their existing working commitments, or increase them, whilst they are in receipt of their full pension benefits.
    • For staff in the 2008 Section and 2015 NHS Pension Scheme, they will no longer need to reduce their pensionable pay by 10 per cent if they elect to ‘draw down’ a portion of their benefits and continue working. 
    • If staff are a special class scheme member, with the right to take their pension unreduced at age 55, they will no longer be subject to the current restrictions called abatement in the amount of work they are allowed to do before losing their pension between the ages of 55 and 60. This new rule will apply both to retired staff returning to the NHS and those who have already returned to work.

    Further information is available on the NHS Pensions website.

    2. How can we respond to concerns from staff on pension tax issues?

    NHS England and NHS Improvement's arrangement for 2019/20

    NHS England and NHS Improvement announced a temporary arrangement to support clinicians facing pension tax issues for the financial year 2019/20. The arrangement applies to all members of the NHS Pension Scheme who are in active clinical roles and who face an annual allowance tax charge in respect of work undertaken during the 2019/20 tax year.

    This is through the existing scheme pays option, which allows members to ask the NHS Pension Scheme to pay their annual allowance tax charge to HMRC on their behalf. Further information is available on the NHS England and NHS Improvement website.

    Reform to the annual allowance taper

    At the budget on 11 March 2020, the Chancellor announced reforms to the annual allowance taper from April 2020 to support service delivery in the NHS. The taper will apply to those whose threshold income is greater than £200,000 and whose adjusted income is greater than £240,000. Both thresholds have been increased by £90,000.

    Those with a total income of less than £200,000 will not be impacted by the taper. This means that 98 per cent of consultants and 96 per cent of GPs will now not be affected based on their NHS earnings. The annual allowance remains, as does the scheme pays arrangement for those facing tax bills as a result of the application of the allowance.

    The NHS Pension Scheme continues to be one of the most comprehensive and generous schemes within the UK. It is a key element of the overall reward package for staff. Where a tax charge is incurred, the scheme pays facility is available to pay the tax charge to HMRC without needing to pay cash up front, with a corresponding reduction to their benefits in retirement. Staff can still build up a valuable pension benefit after tax and should seek expert advice on the tax implications of their NHS work and pension scheme membership.

    The taper reforms apply to all staff groups across the NHS workforce, including those in clinical and non-clinical roles.

    Guidance and advice for staff

    We have compiled a list of organisations list of organisations that are able to give expert guidance and advice on pension tax issues for members of the NHS Pension Scheme.

    3. What is the impact on auto-enrolment when staff return to work?

    Staff who retire from the 1995 Section and return to work are unable to re-join the NHS Pension Scheme (NHSPS). Employers must therefore provide an alternative pension arrangement in line with auto-enrolment legislation. 

    Staff in the 2008 Section or 2015 NHS Pension Scheme can re-join the NHSPS whilst in receipt of their benefits and build further pension. Such eligible staff will be auto-enrolled into the NHS Pension Scheme on their return to work, but can opt-out should they wish. 

    4. Do temporary staff have access to the NHS Pension Scheme?

    If staff hold a contract of employment with an NHS employer and are on payroll, they will be auto-enrolled into the NHSPS unless they choose to opt out. Staff employed through a third-party are not eligible to join the scheme.

    5. Can a member of staff defer a retirement decision?

    Yes, but they should not need to do so because the government has lifted the restrictions on the amount of work staff can do without losing any of their pension during the emergency.  If a member of staff has already applied to retire and receive their pension benefits, this can be deferred to a future date. Employers should email the NHS Pensions stakeholder account using the subject heading Deferred retirement and set out the full details of the request.