When you joined the NHS, you automatically became a member of the NHS Pension Scheme, often described as one of the most valuable employment benefits available. But what makes it such a good deal? What are the potential drawbacks, and what should you review each year to make sure your pension record is accurate?
This guide breaks down how the NHS Pension works, what makes it different, and what every healthcare professional should keep an eye on.
What Is a Pension, and Why Is the NHS Pension Different?
A pension is a way of setting aside income during your working life to provide financial security when you retire.
Most pensions are tax-efficient, meaning your contributions are deducted before income tax is applied.
- If you’re a basic-rate (20%) taxpayer, paying £1 into your pension effectively costs you 80p.
- If you’re a higher-rate (40%) taxpayer, each £1 contribution costs you just 60p.
However, the NHS Pension has its own contribution tiers, which means higher earners don’t always benefit from the same level of tax relief.
Defined Benefit vs Defined Contribution: What’s the Difference?
The NHS Pension is a Defined Benefit (DB) scheme, and that’s a big deal.
Here’s what that means in plain English:
Most private pensions (Defined Contribution or DC)
- You and your employer pay into a pension pot.
- The money is invested, and your retirement income depends on how those investments perform.
- If markets fall or your pot runs out, your pension income could drop or stop entirely.
The NHS Pension (Defined Benefit)
- You and your employer pay regular contributions (like membership fees).
- In return, you’re guaranteed a set pension income for life, based on your salary and length of service.
- The scheme is backed by the UK Government, so your benefits are protected.
- Payments are automatically adjusted for inflation, helping to maintain their real value over time.
In short: unlike most private pensions, your NHS pension won’t run out, and it isn’t tied to stock market performance.
How the NHS Pension Works
There are three sections of the NHS Pension Scheme, each with slightly different rules:
- 1995 section: based on your final salary
- 2008 section: also final-salary based, but with different accrual rates
- 2015 section: a Career Average Revalued Earnings (CARE) scheme, based on your average pay across your NHS career
From April 2022, all active members moved into the 2015 scheme, so we’ll focus on that.
Under the 2015 CARE scheme, each year you earn a fraction of your salary (currently 1/54th) towards your pension. Each year’s pension slice is then revalued for inflation until you retire.
The NHS Pension works slightly differently for GPs and dentists, who often have variable earnings and may pay contributions through different NHS bodies, but the underlying principles are the same.
How Much Do You Pay In?
Your contribution depends on your pensionable earnings. The higher your earnings, the higher your percentage contribution.
Below are the current England contribution rates from April 2024 (these will change periodically in line with Agenda for Change pay scales).
| Tier | Pensionable Earnings | Contribution Rate (from 1 April 2024) |
| 1 | £0 – £13,259 | 5.2% |
| 2 | £13,260 – £26,831 | 6.5% |
| 3 | £26,832 – £32,691 | 8.3% |
| 4 | £32,692 – £49,078 | 9.8% |
| 5 | £49,079 – £62,924 | 10.7% |
| 6 | Over £62,925 | 12.5% |
It’s important to note that your contribution rate doesn’t determine the eventual size of your pension, it’s simply your membership fee for being part of the scheme.
Separate contribution tables apply in Scotland, Wales and Northern Ireland, where rates are reviewed independently.
When Can You Retire?
Your Normal Pension Age (NPA), the age you can take your NHS pension in full, depends on which section you’re in:
| Section | Normal Pension Age |
| 1995 | 60 |
| 2008 | 65 |
| 2015 | Linked to your State Pension Age |
For members of the 2015 scheme, your pension age moves in line with any future increases in the State Pension Age, meaning if the government raises it, your NHS pension age also rises.
Can You Retire Early or Boost Your Pension?
Yes, but there are conditions.
You can choose to take your NHS pension before your normal pension age, but it will be reduced to reflect the longer period it’s likely to be paid.
Alternatively, you can buy additional pension or use options such as ERRBO (Early Retirement Reduction Buy Out) to improve your benefits or retire earlier without penalty.
Because these choices can have long-term implications, it’s wise to speak to a specialist medical accountant before committing.
What Is the McCloud Judgment?
The McCloud judgment was a landmark legal case affecting many NHS staff. It ruled that members who were moved from earlier NHS pension sections (1995/2008) into the 2015 scheme were unfairly treated based on age.
As a result, affected members are being given a choice of benefits, either to remain in their legacy scheme or stay in the 2015 scheme for the period between 2015 and 2022.
If you worked in the NHS during that time, you’ll eventually be asked to make your choice. It’s important to review your statements carefully and seek professional guidance before making a decision.
Annual Pension Checks: Keeping Your Record Up to Date
Each year, you should review your NHS Pension Statement to ensure:
- Your pensionable pay and service dates are recorded correctly
- Contributions have been allocated to the right scheme
- Your total pensionable service is accurate
Mistakes can take years to correct, so catching them early is essential. Your accountant can help you interpret your statement and highlight any inconsistencies.
Final Thoughts
The NHS Pension is one of the most valuable benefits available to healthcare professionals , but it’s also complex. Understanding how it works, what affects your contributions, and how your benefits are calculated can make a real difference to your financial planning.
At Accounting People, we work with doctors, locums, dentists and other healthcare professionals across the UK to help them make sense of their finances, from NHS pension guidance and tax planning to private practice accounts and retirement strategies.
If you’d like to understand how your NHS Pension fits into your wider financial plan, let’s talk.
Visit Health Care Accountants to book a free consultation with one of our specialist medical accountants.
