Graham Crossley

NHS pension specialist for Quilter

In the run-up to the Budget, there was widespread speculation about potential changes to pensions. This included reducing the tax-free lump sum limit to £100,000, introducing a flat rate for tax relief, and reintroducing the lifetime allowance. As a result, we saw an increase in members considering retirement before the Budget announcement.

We now know that none of the speculated changes were included in the Budget. Some members may feel frustrated if they felt pressured to take benefits earlier than planned, especially as this could mean a reduced pension since recent increases in pensionable pay would not have been fully accounted for in their final pensionable pay. Pensionable pay increases typically require 365 days in payment to be fully included in final pensionable pay calculations.

The Budget has introduced some fundamental changes to pensions. The Chancellor announced that from 6 April 2027, unused pension funds and death benefits will be included in a person’s estate for Inheritance Tax purposes. A move that will certainly make inheritance tax and retirement planning more complicated.

So, how does this impact the NHS pension? Well, not significantly.

The NHS pension provides lump sum and pension benefits to eligible dependants in the event of a member’s death.

Lump sum death benefits from the NHS pension scheme are already included in a person’s estate for Inheritance Tax purposes if those benefits are paid to a qualifying scheme partner or nominated individual who is not the member’s spouse or registered civil partner. Payments to a member’s spouse or registered civil partner are currently excluded and will continue to be excluded from Inheritance Tax assessment. Dependants’ pensions from defined benefit pension schemes will also remain excluded from the value of the estate for Inheritance Tax purposes.

Some members may have set up NHS Money Purchase Additional Voluntary Contributions (MPAVC), these are a separate retirement fund, which you invest and are used to supplement your main scheme benefits at retirement or later. MPAVCs will be treated like all other defined contribution pension schemes and will be subject to the new rules.

As a result of the changes to defined contribution pension schemes, we may see an increase in the number of members who use voluntary scheme pays from their personal pensions to settle annual allowance charges derived from their NHS pension, particularly for 2024/25 where we expect to see an increase in members subject to annual allowance.

The Government has launched a consultation, set to close on 22nd January 2025, to gather input on the processes required to implement these changes.

In summary, whilst there were widespread predictions of fundamental changes to pensions, the actual impact on NHS pensions has been limited. Although the new rules will make inheritance tax and retirement planning more complex, NHS pensions remain largely unaffected.

Lump sum and pension benefits for NHS dependants retain their existing inheritance tax treatment, meaning members’ primary NHS pension benefits are shielded from the latest inheritance tax adjustments.

McCloud Remedy: Remediable Pension Savings Statement (RPSS) update

The RPSS is issued to individuals affected by the McCloud remedy, detailing changes to pension savings during the remedy period (April 2015 – April 2022) due to the rollback of members' benefits into their original 1995/2008 scheme, effective from 1st October 2023. This statement helps members determine if they are entitled to compensation or a refund for overpaid annual allowance tax during the remedy period, or if they have any new or revised annual allowance tax charges between 2019/20 and 2022/23.

The deadline to report a new or revised annual allowance tax charge to HMRC is 31st January 2025 if you originally joined the 2015 scheme before 1st April 2022 and have not taken your NHS pension benefits before 1st October 2023. If you receive a late RPSS, the deadline extends to 3 months from the date of receipt of RPSS.

NHSBSA has sent over 57,000 Remediable Pension Savings Statements (RPSS) to members via their automated process since the beginning of October. There are still thousands of RPSSs that still need to be sent out, these will include those that require manual calculation or have data missing during the remedy period.

You are not currently able to request an RPSS from NHSBSA. They have stated “We cannot accept requests for on demand statements. Only Remediable Pension Savings Statements (RPSSs) produced through the automated process are being sent at this time. Your RPSS will be sent at a later date. There’s no timescale for this”

Unfortunately, we have found some errors with RPSSs, most are related to niche circumstances such as those with MHO status reaching maximum service levels, Choice 2 revocations where members originally had added years contracts, and members where pre-remedy pension growth changes between the summary page and carry forward page. These have been reported back to NHSBSA.

McCloud Remedy: Cost Claim Back Scheme (England & Wales)

The Cost Claim-back Scheme provides support for members directly affected by the McCloud remedy, allowing them to claim reimbursement for certain financial losses incurred due to discrimination or the application of the remedy. This includes covering costs of up to £1,000 (including VAT) for professional assistance in using the HMRC Digital Service to reassess annual allowance tax charges.

McCloud Remedy: Contingent Decisions

If you opted out of the NHS Pension Scheme due to the discrimination highlighted in the McCloud judgment, you may be eligible to reinstate some or all of your membership between October 2014 and April 2022. This could lead to some complex choices for members, particularly as some may benefit from reinstating partial membership, rather than full membership, as sometimes less membership can result in higher pension benefits.

For reinstated service contributions, active or deferred members can pay through a lump sum or instalments, while pensioner members may have these deducted from their pension in payment. We are still waiting for the final details on how this operate, however the Cost claim-back application form has now been updated to include costs associated with advice on the potential purchase of that scheme membership.

In conclusion, the McCloud remedy introduces complex changes to NHS pensions, with elements like the RPSS, Cost Claim-back Scheme, and Contingent Decisions, all designed to address past discrimination. Support is available, and upcoming webinars will provide additional guidance, helping members make informed decisions about their pensions and related tax matters.

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