Partial retirement made easier by government

Rule changes designed to encourage NHS pension scheme members to work for longer have been confirmed by government, and may lead to a boom in staff opting for partial retirement.

These changes, which were laid out in a consultation document in December, include:

• Removing rules which prevented retired staff from returning to work and contributing to their pension, while also receiving pension benefits;
• Enabling staff to partially retire but continue contributing to their pension while also receiving pension benefits, if they reduce their pensionable pay by at least 10 per cent;
• Allowing staff who retire then return to work to increase their working hours without affecting their pension payments – a move introduced temporarily early in the pandemic, and now made permanent;
• Aligning the inflation rate used for re-evaluating pensions to that used for tax allowance calculations, to make sure a sudden rise in inflation does not lead to higher pension tax bills; and
• Granting primary care network staff more access to the NHS pension scheme

The changes for staff who have retired and returned are due to come into force from April as initially planned, although the rules for staff who wish to partially retire will not come in until October. The government’s consultation response document stated that, because of the level of interest shown, it anticipated a “substantial number of members will choose to partially retire when this option becomes available”.

It added the extended date would give employers and the scheme administrator “more time to prepare and ensure the process runs smoothly for staff who wish to [take] advantage of the new option”.

Consultation responses in favour of partial retirement stated it would help bridge the gap between being eligible for the NHS pension and state pension and would better suit priorities later in people’s career.

The document continued: “Other respondents stated… they planned to make use of this new option and work for longer in the NHS rather than retiring completely in the near future. This feedback chimes with the [Department of Health and Social Care’s] rationale for introducing partial retirement… If experienced staff members choose to delay their retirement by partially retiring instead, they could remain in NHS service, contributing their valuable skills and knowledge.”

However, British Medical Association pensions committee chair Vishal Sharma said: “Although the government’s retirement flexibility proposals are helpful for doctors and other NHS staff who are close to retirement age, the BMA has consistently made clear these proposals do nothing for the majority of the workforce that is impacted by pension taxation… and do nothing for the tens of thousands of mid-career consultants and GPs, for whom partial retirement would not be an option.”

Dr Sharma added that delaying the partial retirement changes to October “means it will simply be too late to prevent thousand of doctors retiring before the end of the tax year. For those who do take partial retirement, the requirement to take a 10 per cent pay cut will lead doctors to reduce their hours at a time when the NHS needs to maximise its capacity to clear huge waiting lists”.

Meanwhile, NHS Employers chief executive Danny Mortimer welcomed the changes, but added: “The government still need to do more. The chancellor now has an opportunity in his upcoming Spring Budget to end the application of annual allowance pension taxation to public sector pensions. NHS leaders urge the chancellor to act decisively to resolve this long-standing area of concern for the NHS and in particular, our senior doctors.”

The consultation proposed no direct changes to either annual or lifetime allowance, which affects how much higher earners can save into their pension before being taxed. These rules are widely said to be resulting in senior staff receiving large tax bills, and leaving the NHS or refusing extra shift, and the government faces ongoing calls to change them.

The document noted some respondents commented on how the tax rules had affected them, with some saying they were “already considering a reduction to their sessions and NHS commitments… [while others] indicated they were considering earlier retirement”.

A DHSC spokesperson said: “The changes to the NHS Pension Scheme will help support NHS staff who wish to remain in work for longer as they approach retirement age. They will also protect doctors from unintentionally higher annual allowance tax charges driven by inflation.”