This note looks at the development of the NHS Pension Scheme and current debates

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The NHS Pension Scheme is a public service pension scheme. It is a Defined Benefit (DB) scheme, which there is a promise to pay pension benefits based on salary and length of service. There are separate schemes for different parts of the UK.

The schemes have been reformed, so there are different schemes, depending on age and date of joining. In each case, the rules are in regulations made by the relevant Minister in the ‘responsible authority’ (the UK Parliament, the Scottish Government or the Northern Ireland Assembly) within the framework of primary legislation.

Reforms to the scheme in 2008 included the introduction of a new section (the 2008 section) for new entrants, which has a higher pension age of 65. Members of the existing 1995 section could remain in that scheme, which had a pension age of 60. New member contribution rates were introduced – tiered according to pay. Pension benefits continued to be based on final salary (although GPs and dental practitioners build up pension benefits on a “career average” basis).

Like other public service pension schemes, the scheme was reformed again under the Public Service Pensions Act 2013. A new scheme introduced from April 2015 provides pension benefits based on career average revalued earnings rather than final salary. Individuals have a pension age linked to their State Pension age. Existing scheme members were moved to the 2015 scheme, except for those covered by transitional protection arrangements for those ‘closest to retirement.

The 2015 reforms were intended to control the potential for rising costs to the taxpayer due to longevity and salary. However, as an additional safeguard, they included a ‘cost control mechanism’, with a cap on employer contributions. This was designed to operate symmetrically, so that if valuations showed that scheme costs had risen or fallen outside of a target rate, steps would have to be taken to bring them back to target. In September 2018, the Government said that initial results of the first post-reform valuations was that costs had in fact fallen, indicating that members should get “improved pension benefits for employment over the period April 2019 to March 2023.” There would be consultation on what this would mean for each scheme from April 2019 (HC Deb 6 Sept 2018 c13WS).

However, on 30 January 2019, the Government said it was pausing this work, pending the outcome of the Court of Appeal judgement in McCloud v Ministry of Justice. This held that the ‘transitional protection’ offered to some members as part of the reforms amounted to unlawful discrimination. The Government accepted that the issues should be addressed across public service schemes (HCWS 1275 15 July 2019). The pause in the cost control mechanism continues on the grounds that scheme costs remain uncertain (PQ 14694, 13 February 2020). Trade unions representing public servants objected to the pause, arguing that the Treasury should accept that the 2016 valuation results reflect the fact that the 2015 reforms were effective in reducing costs. For more on the 2015 reforms and legal challenge, see Public service pensions – the 2015 reforms (CBP 5768, Feb 2020).

Changes due to the Coronavirus have included a temporary suspension in the ‘abatement rules’ (whereby a pension can be reduced on return to NHS employment) and the introduction of coronavirus life assurance schemes.

The costs and liabilities of this and other public service pension schemes are discussed in Public Service Pensions: facts and figures (CBP 8479, December 2019).

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