subject: New NHS Benefits - It's All Ended in Tiers by:Ray Prince [print this page] There have been many changes in overall pension rules by the government, and we have discussed in Financial Tips how this has affected the NHS Pension Scheme in previous articles such as the Lifetime Allowance.
Other NHS rule changes might not be so obvious, but for the unfortunate few who fall ill, have a serious accident or die in service, these rule changes are important.
The NHS have introduced new rules on Ill Health Retirement and on Death In Service Benefits. The calculations are based on new Tiers called (simply) 1 and 2.
We only cover some of the main points here, and for full information please see the NHS website.
These new rules are based on a member having a normal retirement age of 60, and more than 2 years service.
Any benefits are based on the NHS medical adviser deeming that you are incapable of continuing in your present duties (Tier 1), or being incapable of any regular work (Tier 2).
These benefits are classed as Ill Health Retirement Benefit, and are normally paid after 1 year or sooner. Let's take a look at an example.
A male dentist aged 45 with 23 years service on a deemed superannuable income of 100,000 pa:
Tier 1 - he would be credited with 23 years only, and this equates to a pension of circa 28,750 and a lump sum of 86,250.
Tier 2 - he would be credited with the 23 years, and then 2/3 of the years he could have worked to age 60. So total credited would be 33 years. This equates to a pension of circa 41,250, and a lump sum of 123,750.
As a summary, Tier 1 benefits will tend to be less generous than the old system, and Tier 2 more generous or similar.
Other points here are: Any Added Years that have been purchased more than 1 year ago will be honoured If you claim before the end of March 2016, then a minimum of 4 years extra service will be credited If you are diagnosed as terminally ill with less than one year to live, a lump sum option is available Any calculations are subject to overall Lifetime Allowance rules Pension benefits are indexed (inflation protected) If you are re-employed, then certain abatement rules could apply It is important to note that any death in service benefits have also changed slightly in line with Tier 2 benefits. This means that it is likely that these are now higher than they would have been.
In addition, the NHS have added eligible beneficiaries as follows: Registered civil partner Nominated long term partner of more than 2 years who is dependant or interdependent When discussing these overall changes, it reminds us of a recent new client. She had quite a lot of Income Protection as well as several Term Assurance life cover policies, and had not reviewed her requirements for a decade.
As she had been clocking up NHS benefits for a number of years, and because she had a few discretionary points that added to her salary, it turned out that she was over insured. This meant that she could reduce or cancel this cover, and save a lot of money each and every month. Next year's holiday paid for!
It also meant that, based on the calculations done using their own Financial sat Nav that we built for them, any death in service benefits that she had could be redirected from her husband to her children as he had no need for them. This in turn will potentially save around 80,000 in Inheritance Tax and no doubt please the children.
The Financial Tips Bottom Line
It is vital to review your protection needs if you have not done so for some time. Did you build in your NHS benefits? Have your circumstances changed? Children now left home? Debt gone or lower now?
Like our new client above, you could save a lot of money :)
ACTION POINT
Ask your adviser to tell you exactly what benefits you would be entitled to from the NHS, and use a Cash Flow Forecast (Sat Nav) to bring it all together. This will tell you if your cover is spot on or you are over/under insured.
If you don't use an adviser, then do your homework and take action if required.
About the author
Ray Prince is an Independent Financial Planner with Rutherford Wilkinson ltd, and helps UK Resident Doctors and Dentists get the best deals on mortgages, protection and investments, as well as helping them achieve their financial objectives. Just visit http://www.medicaldentalfs.com to get your free retirement planning guide. Rutherford Wilkinson ltd is authorised and regulated by the Financial Services Authority.
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