Reduction in Earnings
What if I suffer a reduction in earnings?
If your circumstances at work change due to organisational change, or you decide to take up a different job which is on a lower salary you have the option to preserve your benefits at the time of this change.
Review Partners recognised that in the run up to retirement some members would prefer, if possible, to remain in NHS employment, perhaps in a lesser capacity, rather than leave the NHS.
The fact that the calculation of pension benefits only considered the last three years pensionable pay provided a disincentive for members to remain in NHS employment in a lesser paid capacity. This was because after three years any earlier, higher salary would not be considered in the final pension calculation.
In order to encourage retention of NHS employees who otherwise may have left the NHS, Review Partners wanted to introduce flexibility in 1995-Scheme to support members who wanted to step down in the run up to retirement while protecting the value to their pension benefits of the previous higher salary (The New Arrangement scheme addresses this using a 10-year reference period for establishing the pay to use in calculating benefits, thus taking into account higher pre-step down pay).
The intent of this provision is:
- to support members wishing to step down in the run up to retirement by allowing the voluntary protection of pensionable pay;
- to alleviate the disincentive for members to remain in NHS employment caused by only considering last three years pensionable pay at retirement, regardless of any earlier, but recent higher pensionable pay the member may have earned; and
- to ensure that only significant, rather than trivial or short-term reductions in pay are protected.
Under these circumstances, the pension calculation is the same; it is whichever is more beneficial to the member when treating the pensionable service both before and after the break / reduction (and all such breaks / reductions) as either:
- separate periods, resulting in separate pensions which are then aggregated to reach the final pension; or
- continuous, resulting in a pension based on the final year’s pensionable pay and the aggregate of the service.
There is no other provision for a member to choose to have their pensionable pay protected in such a way.
New provision overview
This provision enables members contributing to the final salary arrangement in the Existing NHS Pension scheme with Amendments on or after 1st April 2008 to request protection of their pensionable pay figure for the purposes of calculating subsequent benefits, provided:
- the member has reached the age of 50;
- the member has at least two years pensionable service;
- the member’s pensionable pay (Notional whole-time pay in the case of part-time members) has reduced by at least 10%;
- the reduction in pay is for at least 12 months;
- the member applies in writing for such protection within 15 months of the reduction in pensionable pay;
- for a pension of at least 12 months (ending immediately before the reduction, the application is in respect off) the members pensionable pay had not been subject to any other reduction; and
- the member has not already protected their pensionable pay through use of this provision.
A member is an eligible member, if all the following are true:
- The member was a contributing member on or after 1st April 2008.
- The member has attained age 50.
- The member has at least two years qualifying service.