Francis Clark are hosting an event on the changes to the NHS pension scheme and how they could affect you. Overview of current position •Reminder of the differences between 1995, 2008 and 2015 schemes •Difference between officer and practitioner posts •Pension flexibilities - making sure you are receiving the maximum pension Allowances - taxation risks and options for protection •Tax impact if annual allowance is exceeded - is ‘Scheme Pays’ a good idea? •Tax impact if lifetime allowance is exceeded •Interaction with personal pension funds •Protections available for lifetime allowance How to decide whether to… •Carry on contributing •Continue with added years •Become a deferred member •Take 24hr retirement

1. NHS Pension
Scheme
15th July 2015
Luke Bennett
Tom Parry

2. www.francisclark.co.uk
Speakers
Luke Bennett
Chartered Accountant and Chartered Tax Advisor
Healthcare partner for Francis Clark LLP
Based in Truro, Cornwall
Act for 50 GP Practices
Director of aisma

3. www.francisclark.co.uk
Speakers
Tom Parry
Chartered Financial Planner
Francis Clark Financial Planning
Based in Exeter

4. www.francisclark.co.uk
Programme
1. 1995/2008 and 2015 Schemes
2. Pension flexibilities
3. Annual allowance and Scheme Pays
4. Lifetime allowance
5. Protections available for lifetime allowance
6. Interaction with personal pension funds
7. Decisions, decisions
8. Q&A

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1995/2008 and 2015 Scheme
Officers
1995 2008 2015
Contribution rate Employee 5% to 14.5% of pensionable pay + Employer 14.3%
Pension 1/80th of final year’s
salary per year of
membership
1/60th of final year’s
salary per year of
membership
1/54th (1.852%) of career
average revalued
earnings (CARE)
Automatic lump sum 3 x pension None None
Abatement of pension for
lump sum
Option to exchange £1 pension for £12 lump sum up to a maximum of 25% of
the capital value
Normal pension age 60 65 State Pension Age

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1995/2008 and 2015 Scheme
Practitioners
1995 2008 2015
Contribution rate Employee 5% to 14.5% of pensionable pay + Employer 14.3%
Pension 1.4% of career average
revalued earnings
(CARE)
1.87% of career
average revalued
earnings (CARE)
1/54th (1.852%) of career
average revalued
earnings (CARE)
Automatic lump sum 3 x pension None None
Abatement of pension for
lump sum
Option to exchange £1 pension for £12 lump sum up to a maximum of 25% of
the capital value
Normal pension age 60 65 State Pension Age

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1995/2008 and 2015 Schemes
• Joined NHS scheme before 1 April 2008 – 1995 Scheme
• Joined NHS scheme before 1 April 2015 – 2008 Scheme
• Some members of 1995 Scheme chose to switch to 2008 Scheme
• On 1 April 2015 all existing members of 1995 & 2008 Schemes join 2015
scheme except for:
• Those within 10 years of normal pension age at 1 April 2012 – full protection
• Those more than 10 years but less than 13 years 5 months of normal pension age at
1 April 2013 – tapered protection

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1995/2008 and 2015 Schemes
• Pre 01/04/15 members will continue to have benefits in two schemes
• 1995/2008 benefits can be claimed at 60/65 by taking 24 hour retirement
• Or earlier with reduction for early payment
• 1995 members can’t build up further rights in 2015 scheme
• 2008 members can build up further rights in 2015 scheme
• 2015 benefits
• Take at same time as 1995/2008 benefits with reduction for early payment
• Take at State Pension Age without reduction
• Any time between the tow
• Or, after State Pension Age with addition for late retirement
• Added years benefits can be taken separately from 1995/2008 benefits

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2008 & 2015 Scheme
Partial retirement
• Optional flexibility for member between 55 and 75
• GPs – “engagement in business” reduced by at least 10%
• Claim between 20% and 80% of full pension
• Can claim partial retirement twice

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Pension flexibilities
• Officer posts – not a practitioner post
• Practitioner post – GP partner, salaried GP, locum GP
• GP can hold both officer and practitioner posts at same time (e.g. CCG
salaried board member)
• NHS Pensions will use most favourable method to calculate pension
• Separate Officer and Practitioner pension
• Practitioner pension that takes account of Officer membership (most common)
• Practitioner pension that includes some Officer membership and separate Officer
pension for remaining Officer membership

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Pension flexibilities
Example 1:
• Dr Trott with 8 years hospital service – final salary £40,000
• Followed by 26 years as GP – CARE £2.5 million
• Member of 1995 Scheme
Separate officer and practitioner pension
£
Officer £40,000 x 8 / 80ths 4,000
Practitioner £2.5 million x 1.4% 35,000
39,000
Practitioner pension that takes account of officer
membership
Practitioner £2.5 million x 1.4% x 34 years / 26 years 45,769

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Pension flexibilities
Example 2:
• Dr Trott takes up CCG post for 2 days per week – full-time equivalent salary of
£120,000
• CARE has grown from £2.5 million to £2.7 million
Practitioner pension that includes some Officer membership and
separate Officer pension for remaining Officer membership
£
Officer (CCG) £120,000 x 0.4 / 80ths 600
Practitioner £2.7 million x 1.4% x 35 years / 27 years 49,000
49,600
Practitioner pension that takes account of officer membership
£
Practitioner £2.748 million x 1.4% x 35 years / 27 years 49,871
Separate officer and practitioner pension
£
Officer £120,000 x 8.4 / 80ths 12,600
Practitioner £2.7 million x 1.4% 37,800
50,400

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Annual allowance and Scheme Pays
Example 3:
• Dr Trott annual allowance calculation for 2014/15
• Assume no unused relief from previous three years
• Annual allowance for 2014/15 is £40,000
• Annual allowance excess £64,510 - £40,000 = £24,510
• Assume 40% tax rate
• Annual allowance tax charge £24,510 x 40% = £9,804
Date Pension X 19 = capital
value
Revaluation Growth
31 March 2014 £45,769 £869,611 + 2.7% £893,090
31 March 2015 £50,400 £957,600 £957,600
£64,510

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Annual allowance and Scheme Pays
• A “Scheme Pays” option is available if the tax charge is in excess of
£2,000
• Election required
• Reduction in pension based on tax paid plus interest (at CPI + 3%)
• Factor based on age / gender when pension drawn
Example 4
• Dr Trott has annual allowance tax charge of £9,804
• At time of retirement including interest, charge has increased to £10,800
• Male age 60 – factor 21.6
• Reduction in pension = £500 (£300 after tax)
• Reduction in lump sum = £1,500

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Annual allowance
Interaction between CPI uplift and dynamisation
Dynamisation is CPI + 1.5% but years are out of sync
Year CPI Dynamisation Difference
2008/09 1.8% 6.5% 4.7%
2009/10 5.2% 1.5% -3.7%
2010/11 1.1% 4.6% 3.5%
2011/12 3.1% 6.7% 3.6%
2012/13 5.2% 3.7% -1.5%
2013/14 2.2% 4.2% 2.0%
2014/15 2.7% 2.7% 0.0%
2015/16 1.2% ? ?

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Lifetime allowance
• Tax charge of 25% of excess over lifetime allowance
• Collected by assuming you will draw pension for 20 years
• Capital value = 20 x pension + lump sum

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Lifetime allowance
Example 5
• Dr Trott decides to retire age 59
• Pension of £52,000 and lump sum of £156,000
• After early retirement factors
• Pension £52,000 x 0.953 = £49,556
• Lump sum £156,000 x 0.970 = £151,320
• Capital value
• £49,556 x 20 + £151,320 = £1,142,440
• Excess over lifetime allowance of £1 million = £142,440
• Reduction in pension £142,440 x 25% / 20 = £1,781
• Actual pension: £49,556 - £1,781 = £47,775

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Lifetime allowance
Abating pension for lump sum reduces lifetime allowance charge
• Excess over lifetime allowance of £1 million = £65,704
• Reduction in pension £65,704 x 25% / 20 = £821
• Actual pension: £39,964 - £821 = £39,143
• Pension without abatement after LTA charge was £47,775
• Real reduction in pension is £8,632 for £115,104 lump sum (1 for 13.33)
Pension Lump Sum Capital value
£ £ £
Before abatement 49,556 151,320 1,142,440
Abatement (9,592) 115,104
After abatement 39,964 266,424 1,065,704

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Lifetime allowance - protection
Individual protection 2014
• Capital value of all pension plans at 5 April 2014 (assuming normal
retirement age)
• If this is greater than £1.25 million, lifetime allowance will be lower of:
• Capital value of all pension plans at 5 April 2014; and
• £1.5 million
• No downsides to individual protection
• Election must be made by 5 April 2017
• NHS Pensions won’t accept valuation requests from GPs before May
2016 unless retirement is before that date
Individual protection 2016
• Expected to work in same way but based on value at 5 April 2016 and
between £1 million and £1.25 million

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Lifetime allowance - protection
Fixed protection 2014
• Fixed lifetime allowance at £1.5 million.
• Election had to be made by 5 April 2014
• Benefit of fixed protection can be lost if any contributions to pension
scheme after 5 April 2014 – beware auto enrolment
Fixed protection 2016
• Expected to work in same way but will fix lifetime allowance at £1.25
million
• Election to be made before 5 April 2016?

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Personal pension plans
Annual allowance
• Contributions to personal pension plans use up part of annual allowance
• Unlikely to be beneficial to contribute to personal pension plan if NHS
pension uses up annual allowance
Lifetime allowance
• Value of fund at drawdown will use up part of lifetime allowance
• Is it better to crystallise personal pension plan before or after NHS
pension?

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Personal pension plans
Example 6
Dr Trott entitled to NHS pension of £52,000 and lump sum of £156,000
This has a capital value of £1,196,000
He has a personal pension plan worth £50,000
Assume lifetime allowance is £1,000,000
If he draws NHS pension first
Excess over lifetime allowance is £196,000
Reduction in pension is £2,450
Pension after lifetime allowance charge is £49,550 (£52,000 - £2,450)
25% tax charge applied to whole of personal pension fund as lifetime allowance used up.
Value of personal pension fund reduced from £50,000 to £37,500.
If he draws personal pension first
£50,000 of lifetime allowance used up out of £1 million - no tax at this stage
Excess over lifetime allowance is £246,000
Reduction in pension is £3,075
Pension after lifetime allowance charge is £48,925 (£52,000 - £3,075)

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Decisions, decisions
• How much income do I need in retirement?
• How large a lump sum do I want?
• Am I better off:
• Continuing to contribute and accepting annual and lifetime tax charges;
• Reducing hours and pensionable pay
• Stopping added years contributions but remaining a member of the scheme;
• Taking 24 hour retirement and drawing lump sum and pension before 60;
• Ceasing contributions and becoming a deferred member (watch loss of other
benefits);

24. www.francisclark.co.uk
Q&A
Questions?
And hopefully Answers!
Topics not covered
• Additional pension
• Early retirement reduction buy out (ERRBO)

25. Luke Bennett
luke.bennett@francisclark.co.uk
Tom Parry
tom.parry@francisclark.co.uk

26. www.francisclark.co.uk
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