How Does the NHS Pension Scheme Work

How Does the NHS Pension Scheme Work?

The NHS Pension Scheme is one of the most generous public sector pensions available in the UK, offering staff across the National Health Service a secure and inflation-linked income in retirement. It’s designed to reward long service and provide valuable benefits to members and their families.

But with multiple scheme sections, career average earnings rules, and changing retirement ages, the structure can feel complex. This article explains how the NHS Pension Scheme works, who it applies to, and what members need to know about contributions, benefits, and retirement options.

What is the NHS Pension Scheme?

The NHS Pension Scheme is a defined benefit pension. This means the benefits you receive are not based on investment performance, but rather on a fixed formula linked to your salary and length of service.

There are three main sections of the NHS Pension Scheme:

1. 1995 Section

2. 2008 Section

3. 2015 Scheme (also called the Career Average Revalued Earnings or CARE scheme)

Your membership section depends on when you joined and whether you’ve transferred between schemes over time.

From 1 April 2022, all active members are now building pension benefits under the 2015 Scheme, although benefits earned in the 1995 or 2008 Sections are protected and preserved.

How does the 2015 NHS Pension Scheme work?

The 2015 Scheme is a career average revalued earnings (CARE) scheme. This means your pension is based on your pensionable earnings each year, rather than your final salary.

Here’s how it works:

• For every year you work in the NHS, you earn a pension amount equal to 1/54th of your pensionable pay

• Each year’s pension amount is revalued (increased) in line with inflation, using the Consumer Prices Index (CPI) + 1.5%

• At retirement, all your revalued pension amounts are added together to form your annual pension income

This structure ensures fairness across different roles and pay levels and still provides a guaranteed pension income for life.

What about the 1995 and 2008 Sections?

Although you cannot build new benefits in these sections from April 2022 onwards, if you were a member of either scheme previously, your benefits are protected and calculated under the rules of that scheme.

1995 Section:

• Final salary scheme

• Pension accrual rate: 1/80th of final salary per year of service

• Automatic lump sum of 3x your annual pension

• Normal pension age: 60

2008 Section:

• Final salary scheme

• Accrual rate: 1/60th of final salary per year

• No automatic lump sum (but can be exchanged)

• Normal pension age: 65

Members with service in these older sections will receive a combined pension — part based on final salary (for 1995/2008 benefits) and part based on career average earnings (for 2015 Scheme benefits).

When can you access your NHS pension?

Your normal pension age depends on the section of the scheme you are in:

• 1995 Section: 60

• 2008 Section: 65

• 2015 Scheme: Linked to your State Pension age

You can choose to take your pension earlier, but this usually means a reduction in the amount you receive, as it is paid for longer.

You can also defer your pension beyond normal retirement age, in which case the amount you receive may be increased to reflect the shorter payment period.

How much do NHS staff contribute?

NHS Pension Scheme members contribute a percentage of their pensionable pay, with contribution rates increasing in tiers based on earnings.

As of 2024/25, contribution rates range from:

• 5.2% for lower earners

• Up to 13.5% for higher earners

Employers (typically NHS trusts) also contribute a substantial amount — currently 20.6% of pensionable pay. These employer contributions do not come out of your salary and help fund the scheme.

Are there other benefits?

Yes. The NHS Pension Scheme offers more than just a retirement income. Additional benefits include:

• Lump sum death benefits if you die before retirement

• A pension for your spouse, civil partner, or eligible children after your death

• Ill-health retirement pension if you become permanently unable to work in your role

• Pension increases once in payment, in line with inflation (CPI)

These features make it one of the most comprehensive pension schemes in the UK.

Can you transfer or top up your NHS pension?

Yes. You can:

• Transfer in previous pensions (from outside the NHS), subject to time limits

• Pay additional voluntary contributions (AVCs) via providers such as Standard Life or Prudential

• Use added pension or buy extra years schemes to increase your NHS pension benefits, subject to certain rules

These options allow you to grow your retirement income or bridge shortfalls in your pension history.

McCloud judgment and changes to the scheme

A legal case known as the McCloud judgment found that the transition from the 1995/2008 Sections to the 2015 Scheme was discriminatory. As a result, affected members will be able to choose at retirement whether to receive their benefits under the old scheme rules or the 2015 Scheme rules for service between 1 April 2015 and 31 March 2022.

This remedy process is currently being implemented and affects many NHS staff who were in service during that period.

Final thoughts

The NHS Pension Scheme is a valuable, secure, and inflation-linked pension that rewards long service and provides a strong foundation for retirement planning. While recent reforms have introduced more complexity, especially with the shift to career average earnings, the core promise remains: a guaranteed income for life, supported by additional protections and benefits.

Whether you’re early in your NHS career or approaching retirement, understanding how the scheme works — and how your own pension is calculated — is vital. It’s worth reviewing your annual pension statement, seeking advice where needed, and planning ahead to make the most of one of the UK’s most generous public sector pensions.