How will recent changes impact my NHS pension?

After another year of changing rules and regulations, the landscape for members of the NHS pension scheme has never been more complex. We have seen headline changes such as the removal of the lifetime allowance, the annual allowance increasing and the introduction of flexible retirement options. Alongside this, the McCloud remedy has been 'finalised' and is starting to be implemented for members across the scheme.

What is the McCloud remedy, and what happens next?

After years of waiting, the McCloud remedy - new changes introduced to address age discrimination arising from public sector pension reforms in 2015 - is finally being processed. Over the next 12 months, the NHS pensions agency will be writing to those of its members who have been impacted and providing an updated statement.

There are two key parts to the remedy that go hand in hand: the impact to your annual allowance tax position, and the impact on your accrued pension benefits.

• The impact on your annual allowance tax position

Firstly, when thinking about your tax position, almost all members will see this change. You may see a reduction in the value of your scheme pay debts or even be eligible for a tax rebate. There will be some instances where your tax position worsens because your benefits have improved. It's important that your personal position and the complex calculations are reviewed, and any amendments actioned.

• The impact on your accrued pension benefits

The second impact relates to the amount of pension you have accrued and whether it's better to receive legacy scheme or reform scheme benefits for the remedy period. This is called the McCloud choice, and you will be offered this choice on retirement from April 2024. If you retire before this date, you will be contacted and asked to make your choice. For others, the choice will be made at a later date - but understanding this as soon as possible may be essential to your retirement planning strategy.

What does the removal of the Lifetime Allowance mean to me?

In the 2023 Spring Budget, the government announced the Lifetime Allowance (LTA) tax charge would be abolished. Alongside this change, the maximum tax-free lump sum value was frozen at £268,275. This is 25% of the former LTA of £1.073m. Any lump sum taken above this amount will be subject to a tax charge. A lower tax-free lump sum may impact on your retirement plans.

If you have a protected LTA in place, you may retain the right to a higher tax-free lump sum. The rules surrounding LTA protection schemes are complex, and if you have them in place, they should be reviewed. There's also still scope for some members to apply for protection; subject to qualifying conditions, this could offer an increased tax-free lump sum.

The removal of the LTA is good news, but there is scope for people to make costly mistakes, potentially missing out on thousands of pounds of tax-free cash. Members who have also contributed to a personal or other pension scheme should look carefully at how this interacts with their NHS benefits.

Additionally, the removal of the LTA and increased annual allowance - from £40,000 to £60,000 - means that previous decisions to opt out of the scheme should be urgently reviewed.

There may be a window of opportunity for some members to take action now, as there is no guarantee we won't see the LTA reintroduced, or annual allowances reduced in the future.

What are the changes to my retirement options?

Following a recent consultation, there have been some significant changes to the retirement options available to NHS staff. If you're considering taking partial retirement, retiring and returning, retiring and rejoining the scheme, or would like to access some of your accrued pension, it's important to understand which option is best for you.

The most recent change is the introduction of partial retirement from October 2023. This allows members of the 1995 scheme to access their pension benefits and continue to work without a break in service while continuing to accrue benefits within the 2015 scheme. The option was previously limited to members of the 2008 and 2015 schemes.

The NHS has released the criteria required for members to use partial retirement, but the release of the promised partial retirement calculator has been delayed.

There is a lot more detail on partial retirement and other options for members to consider, and it's important that members are aware of the key differences between the options mentioned above.

How can I find out if I'm impacted?

With the landscape constantly evolving, it has never been more important to take a step back and understand your NHS pension.

Alongside the McCloud remedy and greater flexibility, we have a complex tax situation and pension regulations constantly changing. This means it's vital to look at how this impacts you and all is up to date and accurate. Small errors can have major consequences, especially when the numbers might influence crucial life choices, such as when to retire and how much pension you will be entitled to.

It's also important to have experts on hand to help you navigate the path ahead. After decades of service to the NHS, you deserve to enjoy your retirement, however you choose to spend it.