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The NHS Pension Scheme is being reviewed and modernised after remaining almost unchanged since the NHS began in 1948.

After three years of debate, consultation and arguments that led to strike action, a deal has been agreed between unions, employers and the government to modernise the system.

The scheme as it stands now is widely recognised as being one of the most attractive reasons for working in the NHS. It is the largest single occupational pension scheme in Europe with more than 1.3 million active members.

Under the current pension scheme, a nurse throughout their working life in the NHS pays in a small amount of their monthly salary towards the pension – usually around 5-6 per cent – while their employer also contributes 14 per cent of the nurse’s salary.

Any nurses who joined the NHS before 1995 have a normal retirement age of 55 (known as special class status). Nurses who have mental health officer status who joined before 1995 also can retire at 55, but they have an added bonus of a doubling of their pensionable years for each year they work beyond 20 years of service.

Nurses who joined the scheme after 1995 have a normal retirement age of 60.

Once a nurse retires, their pension is calculated on their final salary or their highest salary of their last three years of service.

Pension officials will divide a nurse’s final salary by 1/80th and multiply it by the number of years they have worked and paid into the scheme. This amount is what the nurse will receive every year from then on.

NHS staff also get a tax-free lump sum on retirement, which is normally equivalent to three times their annual pension.

Two of the government’s original proposals to change the retirement age to 65 and change the final salary scheme to a career average scheme (CARE) were the most controversial and provoked an angry response from unions.

After much debate and compromise, agreement was reached in August 2006, but unions still have to consult with their members before the new arrangements are fully approved.

If approved, the revised NHS pension is to remain a final salary scheme. Two new schemes will be introduced in December 2007.

One will be for existing holders of an NHS pension, which has the normal pension age protected at 60, and 55 for special classes of nurses. This scheme will contain a number of improvements, including survivor pensions for partners and the option to take a larger lump sum, although they will not be exempt from a rise in contribution rates.

The second scheme for new starters has a normal pension age of 65 and benefits include flexibility to take all or part of the pension while continuing to work and build up more pension.

Current holders will be allowed to choose whether they transfer their pension to the new scheme.

Updated: September 2006

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