News / New pension gets green light

The new agreement means there will be two schemes – one for existing pension scheme members and one for staff who join the NHS on or after 1 April 2008. Both will have a final salary scheme, but existing members will be able to keep a normal retirement age of 60 (65 for new members).

Contribution rates will change and apply for new and existing members. In the first tier (up to £19,165 a year), members will pay 5% of pay. In the next tier (£19,166 to £63,416), members will contribute 6.5%. Currently in tiers one and two manual workers pay 5% but others pay 6%. For tier three (£63,417 to £99,999), contributions will rise from 6% to 7.5%. For tier four (£100,000-plus), they will increase from 6% to 8.5%.

Existing members’ pensions will be calculated on a 1/80th accrual rate and a 3/80th lump sum for each year of service, based on the best of the last three years of work before the age of 60. New members will get a 1/60th accrual rate for each year of service, based on the average of the best three consecutive years of membership in the 10 years before retirement. There will be some flexibility over how the lump sum is taken for existing and new members.

NHS Employers said employer contributions would be capped at a maximum of 14.2% until 2016 and 14% from 2016, which is in line with employers’ current contribution rate of 14%.

NHS Employers' pensions review project manager Tim Sands said employees would fund costs above this level.

‘The agreement transfers the risks to employees in return for keeping the final salary,’ he said. ‘Though there may be a small increase of 0.2% before 2016, finance directors can be reassured pensions will not be a major instability in their costs. Without this agreement, employers’ contributions would have increased by between 1% and 2% of pensionable pay from next April.’