How does this relate to the NHS Pension Scheme?
As previously discussed, the NHS pension is what is known as a defined benefit scheme, which is based on your final salary or career average earnings and, as such, there is not an individual ‘pot of money’. It is, therefore, important to understand the method of converting your NHS benefits to a monetary value so that you can measure it against the Lifetime Allowance. Here is a basic guide and example:
There are ‘two factors’ that you need to remember, 20 for the annual pension benefit and one for the lump sum, dependent upon which Section or Scheme you are in
- Step 1: Multiply your total Pension by 20
- Step 2: (1995): Multiply your pension by 3 to find your lump sum
- Step 2: (2008 & 2015): Use pension commutation to create a lump sum
- Step 3: Add Step 1 and Step 2 together. This equals your LTA value.
An NHS employee in the 1995 Section has reached the age of 60 and has been provided with a pension statement from his payroll indicating a pension benefit of £35,612.43.
- Step 1: £35,612.43 x 20 = £712,248.60
- Step 2: £35,612.43 x 3 = £106,837.29
- Step 3: £712,248.60 + £106,837.29 = £819,085.89
In the 1995 Section an LTA of £1.055m equates to a pension of £45,870
In the 2015 Scheme it is £52,750