Using flexible retirement to support retention

How promoting the flexible retirement options can benefit employers

• Supporting employees to work flexibly towards the end of their careers can help employees achieve a healthy work-life balance and enable experienced staff to stay in the NHS for longer and pass their valuable skills and knowledge to colleagues.
• Retaining experienced staff is critical to ensure the delivery of high-quality patient care. 
• By enabling employees to retire flexibly, employers can support the health and wellbeing of employees who are approaching the end of their careers. This can help to improve sickness absence rates and productivity, while reducing rates of stress, fatigue and burnout.
• Offering retired staff the option to re-join the NHS Pension Scheme after full or partial retirement is a way of supporting the financial wellbeing of employees, as it allows staff to build up further pension for a comfortable retirement and may help to bridge any gap between taking their NHS Pension and State Pension benefits.
• Partial retirement can be used by employers as a tool to support staff affected by annual allowance, as the ability to take all or part of their pension and continue working may help some staff to control their pension growth.

Partial retirement (sometimes referred to as draw down)

• Partial retirement is already available to staff who have pension benefits in the 2008 Section or the 2015 Scheme and will shortly become available to those with pension benefits in the 1995 Section from 1 October 2023.
• Partial retirement enables members who have reached minimum pension age to take all or part of their pension whilst continuing to work.
• Members may take from 20 per cent up to 100 per cent of their pension benefits in one or two payments, without having to leave employment. 
• Members must reduce their pensionable pay by at least 10 per cent before taking partial retirement.
• After taking partial retirement, members may choose to build up further pension in the 2015 Scheme. The retire and re-join chapter provides further detail on the ability to re-join the 2015 scheme after full or partial retirement.
• Partial retirement is similar to retire and return, in that it enables employers to retain experienced colleagues. However, with partial retirement, there is no need for the employee to end their contract of employment in order to take their pension benefits. Members also have more flexibility to choose to take some or all of their benefits.  The retire and return chapter provides further detail on retire and return.

Achieving the 10 per cent reduction in pensionable pay

Employees who are considering partial retirement will need to have a conversation with a member of their HR team to agree a change to their terms and conditions of employment in order to achieve the required 10 per cent reduction in pensionable pay.  The employer and the employee must come to an agreement on how to reduce the member’s pensionable pay before the member’s application for partial retirement can proceed.   

Open conversations between the employee and the HR team will be key to understanding the employee’s circumstances, needs and preferences.  The needs of the employee should be considered and balanced alongside the aims and priorities of the employing organisation, in order to agree a solution which suits both parties.   

There are many different ways of reducing pensionable pay and the most effective method will depend on the individual circumstances of the employee and the employer. There is no one size fits all solution to reducing pensionable pay and in some cases, bespoke arrangements will need to be agreed.   

To support your conversations with staff, we have included a list of options below for you to consider together during your discussions.   

• stepping down to a lower paid role 
• reducing the employee’s level of responsibility 
• reducing the employee’s contractual working hours or commitments  
• agreeing temporary agreements to change the employee's terms and conditions of employment
• using bank contracts
• offering retire and return as an alternative way to access pension benefits. 

Processing the 10 per cent reduction in pensionable pay through the ESR payroll system

Some employers have reported some challenges in processing agreed changes to working arrangements and pensionable pay on the ESR payroll system.  In some cases, ESR may treat some payments as pensionable, where the payments made are intended to be ad-hoc or temporary and should therefore, be non-pensionable. 

Employers are currently using two local manual solutions on ESR to resolve this: 

Determining certain elements of the employee’s pay as non-pensionable

In cases where the employer and employee agree that the individual should continue to work in the same role, with no reduction in working hours, commitments or responsibilities, employers may review the structure of the employee’s remuneration to identify if some elements of pensionable pay could be determined as non-pensionable.  The scheme regulations require the member’s pensionable pay is reduced on partial retirement, but in some cases, it may be possible to replace pensionable payments with non-pensionable payments in order to maintain the employee’s total remuneration. 

Monitoring the 10 per cent reduction in pensionable pay

Employers should be confident that the agreed contractual change to working arrangements will lead to a reduction in pensionable pay of at least 10 per cent which can be maintained for the 12 month period. During this time, if the member’s pensionable pay increases to more than 90 per cent of their pensionable pay before they took partial retirement, abatement will apply in full and the member’s pension benefits in payment will be stopped. If a member’s pay does increase to more than is allowed and abatement occurs, their pension will only start to be paid again, once their pensionable pay is reduced by a minimum of 10 per cent of the pay that their original decision to take partial retirement was based on. At the end of the 12 month period, the employee and employer may wish to revert back to the original working arrangement, if appropriate.   

HR teams should give clear instructions to their pension and payroll colleagues to ensure that the agreed changes to working arrangements or pensionable pay are accurately processed and updated on the employee’s pension and payroll records. 

The member and employer should not agree any further changes to the employee’s contract of employment which would increase pensionable pay back up to 90 per cent of the member’s pensionable pay before their partial retirement during the 12 month period. Annual pay awards and pay increases members receive as they move through their pay band or pay scales do not count towards this, but any pay increase resulting from a contractual change to their terms and conditions will. For example, if a member decides to apply for a different job with a higher salary, increase their hours or increase their commitments.

Employers should make members aware of the changes that could lead to abatement and overpayments that members would need to pay back when their pension record is updated at year end.

Employers should inform NHS Pensions if contractual changes increase a member’s pay to more than 90 per cent of their pensionable pay in the 12 months after taking partial retirement. Members should inform NHS Pensions of any increases to their level of pay or changes to their conditions of employment.

Further information about abatement and partial retirement is available below. 

Supporting members of the 1995 Section who wish to take partial retirement before 1 October 2023

Partial retirement will be available to eligible members of the 1995 section from 1 October 2023.  As an interim measure, where an employee wishes to take partial retirement from the 1995 section before it becomes available, employers should allow the employee to retire and return to employment on the same terms and conditions.

Partial retirement will not be available to members who have already built up the maximum of 45 years’ service in the 1995 Section of the NHS Pension Scheme. These members will not have a pensionable pay figure against which the 10 per cent reduction can be assessed. Retire and return may be offered to these members as an alternative way to access their pension benefits and continue working in the NHS.

More detail on terms and conditions of employment after retire and return can be found in the retire and return chapter.

Application process for partial retirement

Step 1

Members wishing to take partial retirement should first have a discussion with a member of their HR team to agree the necessary changes to contractual terms and conditions to reduce their pensionable pay by 10 per cent. 

Step 2

The member and employer must then complete the NHS Pensions retirement benefits claim form (AW8) and the Partial Retirement Supplementary Form.

Step 3

Both forms should be sent to NHS Pensions for processing. 

Step 4

Employers should not close down the member’s record on Pensions Online as the member is continuing in that employment. 

The application process for partial retirement is similar to the application process for any other retirement, but an additional form, the Partial Retirement Supplementary Form, is required.  We recommend employers read the Partial Retirement Employer Factsheet on the NHS Pensions website before completing the form.  The following additional information is required to complete the supplementary form: 

• Confirmation that the member’s terms and conditions of employment have been changed to achieve a reduction in pensionable pay of at least 10 per cent, and that the reduction in pensionable pay is expected to be in place for 12 months. 
• Confirmation that the member has been made aware that they have an option to take their benefits from the 1995/2008 Section based on membership up to 31 March 2015 only.  This option relates to the McCloud remedy and further information is available below. 
• The percentage of benefits the member wishes to take. 

NHS Pensions are advising members who wish to take partial retirement from 1 October 2023 to submit their applications in early August and they will do all they can to process applications in time for 1 October 2023.  NHS Pensions will ensure payments are backdated the member’s chosen retirement date, where necessary.  

Retire and return

Retire and return is a way of retiring flexibly which works alongside the NHS Pension Scheme Regulations. Members who have reached the minimum pension age may leave NHS employment, claim their pension benefits and later decide to return to NHS employment. Staff have the option to join the 2015 scheme on returning to work in the NHS, if they wish.

The NHS Pension Scheme regulations require members of the 1995 section to leave employment and have a break in service of at least 24 hours in order to take their benefits from the scheme. 

Differences between retire and return and partial retirement

The key distinction between retire and return and partial retirement is that with retire and return, the member must leave NHS employment, take their pension and be re-employed on a new contract of employment at a later date. With partial retirement, the member can take their pension without leaving their job or taking a break in service and so their existing contract of employment continues to be in place.

Another important difference is that members who retire and return must take all their benefits from the 1995 Section at once, whereas partial retirement provides additional flexibility for members to take some or all of their pension in one or two payments.

As partial retirement provides a more seamless approach, it is expected that going forward, partial retirement may be more attractive for staff who already know they plan to continue working after taking their pension. 

After the introduction of partial retirement, retire and return may still be used where a member retires and then decides sometime later that they wish to return to work in the NHS. Retire and return will continue to be a useful tool for employers to attract and welcome back retired staff to the NHS workforce workplace to fill gaps in capacity and help deliver high-quality patient care.

How to support staff with benefits in the 1995 Section who wish to take partial retirement before it becomes available on 1 October 2023

Partial retirement will not be available to staff with benefits in the 1995 section until 1 October 2023.

However, employers can use retire and return as an interim measure, up until partial retirement is available for 1995 members, by allowing employees to leave employment, take their benefits from the 1995 section and return to work on the same terms and conditions of employment. 

Retire and re-join

From 1 April 2023, employees who have taken their pension from the 1995 section of the NHS Pension Scheme and return to work in the NHS will be able to join the 2015 scheme and build up further pension if they wish.

This will enable employers to provide a more valuable reward offer to attract and retain their most experienced staff.

Prior to these changes being introduced, employees who had taken their pension from the 1995 section were not eligible to re-join the NHS Pension Scheme on returning to work in the NHS. Many employed pensioners may be members of an alternative pension arrangement, for example, the National Employment Savings Trust (NEST), or may not contribute to a pension scheme.

Employers are not required to automatically enrol these employees into the NHS Pension Scheme. However, employers must set up membership for any employees who take up the option to join the 2015 scheme and may need to end their membership to any alternative pension arrangement.

Employees who retire and return on or after 1 April 2023 should be contractually enrolled into the 2015 scheme on the first day of their employment, in the same way as any other new starter.

Where an employee chooses to end their membership to an alternative pension arrangement and join the 2015 scheme, they may ask if it is possible to transfer their benefits from the alternative pension arrangement in to the 2015 scheme. Employers should signpost employees to guidance on transferring benefits on the NHS Pensions website. 

Employers should continue to use the NHS Pension Scheme as the default scheme for contractual enrolment and automatic enrolment.

Flexible working for staff in the later stages of their career

The definition of retirement is changing and broadening. Many employees are considering how they can gradually adjust their working patterns to achieve a healthy work-life balance and a smoother transition from their working life into retirement. This shift towards retiring flexibly leaves behind the expectation that retirement means permanently leaving the workplace and employment, or that full time work should immediately be replaced with full time retirement.

Flexible working is just as valuable for staff approaching the end of their careers, and for retired staff who are returning to the NHS, as it is for those joining the NHS for the first time or returning from parental leave.

Flexible working is key to retention, employee engagement and supporting staff to live healthy working lives, and NHS employers are committed to offering more flexible, varied roles and opportunities to their employees.

Employers should consider flexible working patterns for employees in the lead up to full retirement. The arrangements agreed should reflect the employee’s experience, skills and preferences as well as the needs of the service.

Options for flexible working:

• part-time work – including job shares, term time only work, annualised hours
• fixed working patterns – to give certainty around days, times and location of work
• compressed or elongated working hours
• fixed-term contracts.

If the retired employee is returning to a post that is related to a specific time-limited project or funding stream, or to cover a period of temporary absence for example, maternity leave, then in those circumstances, a fixed-term contract may be appropriate for the employee and employer.

Employers should carefully consider their reasons and objectives for offering a fixed-term contracts, if the fixed-term contract is necessary, and if there are any alternative ways to achieving their aims. 

Employers should consider how a fixed-term contract may be perceived and valued by the employee. Some staff may find a fixed-term contract attractive if it fits with their personal circumstances and plans. For others, the long-term uncertainty may discourage the employee from returning. 

Bank / locum work

Bank or casual work (zero hours contract) is seen by many employees and employers to offer the greatest level of flexibility.

However, some employees may feel their status in the organisation would be lessened by moving from a substantive post to a bank post.  There may be other implications of moving to a bank contract, for example loss of voting rights or loss of control over certain processes, that may make an employee feel undervalued or unable to contribute to their full potential. Again, it is important for employers to consider how offering a bank or locum contract of employment would be perceived and valued by the employee and how this may impact their decision to return.

Flexible retirement resources

Our flexible retirement web page provides an overview of the different retirement flexibilities, with ‘real life’ examples showing how the flexibilities benefit both the organisation and the individual.

Use our retirement flexibilities poster to support your conversations with NHS staff about the flexible retirement options available in the NHS Pension Scheme.