Neil Richardson explores the outcome of the government’s McCloud consultation and what you need to consider before making a decision.
In April 2015, public sector pension schemes were reformed, with most members moved into new career average arrangements.
Following consultations with member representatives when the schemes were reformed, transitional protections were put in place to protect those close to retirement. These protections meant that members within 10 years of retirement on March 31, 2012 would not move into the reformed schemes, usually referred to as the 2015 scheme. It also meant that those between 10 and 13.5 years from retirement would move to the reformed scheme, but later.
In December 2018, the Court of Appeal found that these protections unlawfully discriminated against younger members of the judicial and firefighters’ schemes. In July 2019, the government accepted that the judgment applied to all the main public service pension schemes, including the NHS.
This consultation is the government’s remedy to remove this discrimination from all public sector pension schemes.
Who’s affected?
All public sector schemes including NHS dentists.
All members who were in service before March 31, 2012 and on or after April 1, 2015. This includes members who were in service on March 31, 2012 and then took a qualifying break of less than five years and members who left pensionable service, or who took their pension benefits, after April 1, 2015.
What’s changing?
As some members will benefit from moving to the reformed scheme, rather than the legacy scheme, the government is proposing to give members a choice.
The choice is which scheme they wish to receive benefits from for the period from April 1, 2015 to March 31, 2022, also known as the ‘remedy period’.
The government has decided to approach this with a ‘deferred choice underpin’ option, where members will be asked to make their choice when they access benefits.
Moving scheme
What do the proposals mean for dentists who were moved from the legacy scheme? The financial implication of choosing one scheme over another will vary from person to person and will need to be carefully weighed up. While it is positive that members can make this decision with all the information once they are ready to retire, it will still be a complex decision to make.
Not only that, but those that are planning on retiring in the coming months will have to keep an eye on the timescales for the rollout of the new rules.
The original consultation had suggested these could come in from April 2022, but the message now is that this could be pushed back to October 2023. Anyone planning on retiring during this period could find themselves impacted by this and should seek financial advice.
New joiners
What’s the impact on dentists joining the pension scheme after April 2012? Those who joined the NHS pension scheme after April 2012 would not have been eligible for protection, no matter how close to retirement they were and are therefore excluded from the consultation. Unless they transferred in from another public sector pension scheme.
Reform effects
How did the 2015 pension reforms affect dentists? How the reforms affect dentists depends on if they were classed as officer members of the scheme, for example hospital dentists, or practitioners, such as general dental practitioners.
Practitioners
While the pension pot builds up slightly differently and the normal retirement ages are different, both the 1995 and 2008 sections of the legacy NHS pension scheme for practitioners, were based on career average earnings.
Both sections put each dentist’s entire salary into a pot of earnings that was then uprated each year by 1.5 per cent, plus the consumer price index (CPI). The member would receive either 1.4 per cent of the pot at the normal scheme retirement age if in the 1995 section, or 1.87 per cent if in the 2008 section.
In the 2015 scheme, 1/54th of each dentist’s earnings are added to the pot each year, which is uprated by 1.5 per cent, plus CPI. The member will get the pot as a pension at the normal scheme pension age.
Officers
Those dentists classed as officers by the scheme will have seen big changes in how their pensions accrue. Although the normal retirement ages are different, both the 1995 and 2008 sections of the legacy NHS pension scheme, were based on service and the member’s salary close to or at retirement.
For all, members still received the similar types of benefits in both the legacy scheme and the 2015 scheme. For example, all offer ill health retirement, a lump sum if the member dies in pensionable employment and a spouse’s pension on death. Some benefits have changed between legacy and reformed schemes.
Dentists in the 2015 scheme would not, for example, receive an automatic lump sum on retirement, which members of the 1995 section do. The 2015 scheme also offers the members the option to buy out their early retirement reduction so they can retire before state retirement age without penalty as well as other ways to allow the member flexibility in retirement.
Need further guidance? With areas as complex as this, it is prudent to obtain advice. Your local Wesleyan Financial Services consultant can advise on how the nuances of this issue affect you now and into the future.