The Government’s pension reform consultation – what it means for GP pensions

Financial advisor Parminder Gill provides an update on the Government’s consultation on remedying pension reform issues, and what it could mean for GPs’ and GP Partners’ pensions in the long term.

When the reforms to public sector pensions took place in 2015, most members of these schemes, including those in the NHS Pensions Scheme (NHSPS), were moved from legacy schemes into new ‘reformed’ schemes. Those within sight of retirement – those within ten years of retirement age – were not automatically shifted to reformed schemes, but allowed to remain in their legacy schemes.

Fast forward three years and the Court of Appeal found that these transactional protections were unlawful and discriminated against younger members of the Firefighters and Judicial schemes – those that didn’t get offered the transitional protection because they weren’t deemed to be within proximity to retirement age. By July last year, the government accepted it needed to take action to remedy this age discrimination in all public sector schemes, including the NHS pension, and in July this year launched a consultation seeking views on the proposed measures to fix it.

The proposed remedy – GPs’ options

For the vast majority of GPs and GP Partners, who are part of the NHSPS, the proposals mean that they will be given an important, and complex, choice to make when it comes to their pension.

They will need to choose between their benefits for the ‘remedy period’ – the seven years between April 2015 and March 2022 – accruing in the legacy scheme, or the reformed scheme.

When this choice must be made is a question within July’s consultation. It could be that members of a public sector pension scheme will have to make the decision within 12 or 24 months after March 2022, or when they come to draw down their benefits.

For those that have already drawn down on their pensions, this decision will be more pressing. They will need to decide as soon as possible after March 2022 and the choice will be applied to the pension retroactively.

How to choose?

The decision is not a straightforward one and will depend on each individual GP’s circumstances and when they expect to retire.

Based on what we know so far, if we look at retirement age – one of the many factors that will impact choice – we can discuss some examples* to illustrate the possible differences in pension benefits for the remedy period.

Take a GP who is an NHS practitioner and who is a member of the NHS Pension Scheme (2015 scheme and 1995 section). In 2012 they were 48, and so received transitional protection. They had pensionable earnings of £80,000 for the 2014/2015 tax year and experienced annual increases in earnings equal to inflation, assumed to be 2% per annum from April 2021.

The examples are:

1. Take NHS pension benefits at State Pension age of 67 in 2031
2. Take NHS pension benefits at age 60
3. Take NHS pension benefits at age 70

Example One

The GP will now be given a choice of pension for their service over the remedy period of either staying in the legacy scheme (1995 section) or moving to the reformed (2015) scheme.

If they retire at their State Pension age of 67 in 2031, then their choice for the accrual during the remedy period is estimated to be between the following pension amounts when they retire:

Legacy scheme: £13,950 per annum (plus a £41,850 lump sum)

Reformed scheme: £13,110 per annum (plus a £41,860 lump sum)

In this case, they would likely be slightly better off receiving legacy scheme benefits. We assume here, to ensure comparison, that the member gives up some pension in the reformed scheme to buy a lump sum equivalent to the one they would automatically receive under the legacy scheme.

Example Two

If the same GP chooses to retire aged 60, instead of 67, then their legacy pension (1995 section) would be lower and the reformed (2015) scheme benefits would be reduced for early retirement.  Their choice is now:

Legacy scheme: £10,970 per annum (+£32,900 lump sum)

Reformed scheme: £6,390 per annum (+£32,900 lump sum)

This means they would likely be better off receiving legacy scheme benefits.

Example Three

Finally, if the same GP chooses to retire aged 70, then their legacy pension (1995 section) would be higher and the reformed (2015) scheme benefits would be increased for late retirement. Their choice is now:

Legacy scheme: £15,470 per annum (+£46,400 lump sum)

Reformed scheme: £20,410 per annum (+£46,400 lump sum)

This means they would likely be better off receiving reformed scheme benefits.

Too soon to know real impact

However, these proposals have still to be agreed and nobody can be sure what the real impact will be on GP pensions as yet. Once the outcome of the consultation is agreed, the different public sector bodies that run schemes such as the NHSPS are expected to carry out a consultation on how it should be applied to them, taking into account their rules and regulations.

It’s in each of these consultations that we expect to see how the schemes will work going forward and understand the exact impact on GPs and GP Partners.

The process of resolving this will take some time, and the final proposal to members could look very different. If you’re unsure about what it could mean for you, speak to a financial adviser to check what the options mean for you and the best way forward.

Parminder Gill is an advice policy consultant at Wesleyan, a specialist financial services mutual for GPs

*The examples only show the benefits accrued in the 7-year remedy period and assume that:

• Inflation is 2% each year from April 2021 onwards.
• The member gives up pension in the reformed scheme to purchase a lump sum.
• An early retirement penalty or late retirement enhancement is included if applicable.
• The member continues as an active member of the scheme after 1 April 2022
• The member does not have any officer service
• The salary increase in each of the examples is the same rate for every year since 2015, in practice this will not be the case
• Salary increases, promotions and retirements occur on 31 March in the relevant year
• The current State Pension age timetable is followed