The NHS Pension Explained

1. What the NHS Pension is

The NHS Pension Scheme is a defined benefit occupational pension. That means it promises you a specified income for life in retirement, calculated by a formula set out in law, rather than handing you an investment pot whose value depends on markets.

It is also unfunded. There is no vault of invested assets with your name on it. Contributions from today's members and employers go towards today's pensions, and your future pension is backed by a statutory promise from the Exchequer. This is why the scheme carries no investment risk for you: markets can crash and your entitlement does not move.

Since 1 April 2022, every active member is building benefits in the 2015 Scheme, which is a Career Average Revalued Earnings (CARE) scheme. Older service in the 1995 Section or 2008 Section still exists and is still payable — it is simply frozen in place and calculated under its own, more generous-in-places, rules.

So most people with a long NHS career hold benefits in two or three separate pots of entitlement, each with its own normal pension age and its own calculation method.

2. Who it affects

You are likely a member, or eligible to be one, if you are:

• Directly employed by an NHS organisation in England or Wales — this covers the great majority of clinical and non-clinical staff
• A GP partner or shareholder (a "Type 1" practitioner)
• A salaried GP employed by a practice (a "Type 2" practitioner)
• A freelance GP locum working as an individual, not through a limited company
• Working for a Direction Body or an employer with independent provider status that has been admitted to the scheme
• Doing GP out-of-hours, appraisal, or other ad hoc practitioner work (usually pensioned via a GP SOLO form)

You are generally not eligible if you work through your own limited company, if you are engaged by an agency that is not an approved employer, or if you have taken certain forms of retirement benefit and are subject to re-employment restrictions.

An important structural point for portfolio workers: the scheme divides your work into officer service and practitioner service. Hospital posts, employed roles, and most non-GP work are officer service. GP work — partner, salaried, locum, OOH — is practitioner service. These are assessed, contributed to, and often calculated separately, which is the root of a great deal of confusion later on.

3. How it works in practice — why there is no pot

This is the single most misunderstood feature of the scheme, and it is worth being blunt about it.

Your contributions do not accumulate into a pot of money that belongs to you.

There is no balance. There is no fund. Nothing is invested on your behalf. If you pay in £8,000 this year, that £8,000 does not sit anywhere waiting for you.

What actually happens is this: each year you earn a slice of guaranteed annual income for life, and your contributions are simply the price of admission to that year's slice.

The mechanism

In the 2015 Scheme the accrual rate is 1/54th. Each scheme year (1 April to 31 March):

Pensionable pay for that year ÷ 54 = pension earned that year

So on £60,000 of pensionable pay:

£60,000 ÷ 54 = £1,111 of annual pension, payable every year from retirement until you die

That £1,111 is now permanently yours. It is added to the pile of slices you have earned in every previous year. At retirement, all the slices are added together, and the total is your annual pension.

Why the distinction matters

Because there is no pot, several intuitions from private pensions simply do not apply:

The practical consequence is that the value of the scheme is enormously sensitive to longevity and to when you retire, and almost entirely insensitive to investment performance. Someone who lives to 95 extracts vastly more than someone who dies at 68, for identical contributions. This is insurance, not saving.

What the employer puts in

Your employer contributes 23.7% of your pensionable pay on top of your own contribution (unless you are a GP partner — in which case you pay this yourself). In accounting terms this funds the scheme's liabilities rather than crediting your account, but it is the reason the scheme remains, on almost any analysis, exceptional value compared to the private sector.

4. Yearly increases: revaluation and Pensions Increase

There are two entirely different annual uplifts, and they apply to two different groups of people. Confusing them is extremely common.

While you are still paying in: revaluation

Every slice of pension you have already earned is increased each year by CPI (the Consumer Price Index, a measure of inflation) + 1.5%. This is called revaluation, and it is applied on 6 April each year.

That extra 1.5% above inflation is the quiet engine of the whole scheme. It means every year's accrual grows in real terms for as long as you remain an active member.

Worked example, on a pension slice of £1,111 earned this year, assuming CPI averages 2.5% (so revaluation of 4.0%):

There is also a floor: if CPI is negative, the CPI element is treated as zero rather than reducing your pension, so the 1.5% still applies. Your accrued pension cannot fall.

Once you stop paying in: Pensions Increase

The moment you leave the scheme — whether you retire, opt out, or simply stop having pensionable NHS work — the CPI + 1.5% treatment stops.

From that point your benefits become deferred and are increased by Pensions Increase (PI) instead, which is CPI only, based on the previous September's figure. The same CPI-only uplift applies to pensions already in payment.

Why this matters enormously

That 1.5% gap, compounded over decades, is worth a great deal. Someone who defers at 45 and retires at 68 loses 23 years of the real-terms uplift on everything accrued to that point.

The practical implication for portfolio and sessional workers is significant. Maintaining even a modest amount of genuinely pensionable NHS work keeps you classified as an active member, which keeps the enhanced revaluation applying to your entire accrued benefit — not just the small amount you are currently adding. A few sessions a year can protect the revaluation treatment on a career's worth of accrual.

There is a further wrinkle: a break of more than five years generally causes your earlier service to be treated as a separate deferred benefit, permanently locked to CPI-only treatment for the break period, with new service starting fresh. Returning within five years preserves the position.

5. Contribution rates by income

Your contribution rate depends on your actual annual pensionable pay and is set out in six tiers. Rates have been unchanged since April 2024; only the thresholds move.

For 2026/27, the thresholds were uplifted by the September 2025 CPI figure of 3.8%. Because the Agenda for Change pay award for England (3.3%) was lower than that CPI figure, no further amendment to the thresholds was made for the year.

Member contribution rates from 1 April 2026 (England & Wales)

The employer contribution rate is 23.7% of pensionable pay.

The cliff edge

These rates are not marginal. Unlike income tax, the rate that applies to you is applied to your entire pensionable pay, not just the portion above the threshold.

The consequence is a genuine cliff edge at each boundary:

• Pensionable pay of £52,778 → 9.8% → £5,172 in contributions
• Pensionable pay of £52,779 → 10.7% → £5,647 in contributions

One extra pound of pensionable pay costs £475 in additional contributions. Crossing a threshold by a small margin can leave you worse off in cash terms, and for those with control over their volume of work — locums especially — it is worth knowing where the boundaries sit.

Tax relief softens the blow

Contributions are deducted under a net pay arrangement, before income tax is calculated. You receive relief automatically at your marginal rate; there is nothing to claim.

• A basic-rate (20%) taxpayer paying 9.8% has a net cost of around 7.8%
• A higher-rate (40%) taxpayer paying 12.5% has a net cost of around 7.5%

Two tiers at once

If you hold both officer and practitioner posts, the two are assessed separately and you may legitimately be paying different percentage rates on different streams of income at the same time. All practitioner income is added together to set a single practitioner tier; officer income does not count towards it, and vice versa.

6. Annualisation and locums

This is where sessional GPs get caught, and it deserves careful attention because it is counter-intuitive and the responsibility for getting it right falls on you.

The core rule

For practitioners in the 2015 Scheme, your tier is set by reference to annualised pensionable income — that is, income scaled up to represent what it would have been across a full scheme year — rather than what you actually banked.

The formula is:

(Total pensionable practitioner income ÷ Number of days in pensionable service) × 365

Only days you actually worked and pensioned count as days of service. Non-working days between assignments are gaps, not service.

Why this hurts part-time locums

Consider a locum who works consistently but part-time, and earns £30,000 across the year — but whose pensionable days, once totted up, come to 120.

(£30,000 ÷ 120) × 365 = £91,250 annualised

They earned £30,000. They are placed in the 12.5% tier as though they earned £91,250. They then pay 12.5% on their actual £30,000 — around £3,750, rather than the £1,950 that 6.5% on £30,000 would have produced.

This is the crux of it: the tier is set on annualised income, but the percentage is applied to actual income. Work fewer days at a good daily rate and you can end up in the top tier on a modest total income.

Who is and isn't affected

• A GP in continuous pensionable service from the first to the last day of the scheme year is generally not annualised — the tier is based on total actual practitioner income.
• Anyone with breaks in pensionable service, or who was not in pensionable service at both the start and end of the year, is likely to be caught.
• Under rules in force since April 2019, breaks of any length can trigger annualisation, not just long ones. The old three-month grace concept no longer protects you.

The practical consequences

You set your own tier, in advance, and reconcile at year end. There is no employer doing this for you. You estimate your tier based on anticipated total practitioner income, pay at that rate through the year, and then recalculate after 31 March. If you underpaid, you owe arrears. If you overpaid, you must actively reclaim it — it will not come back on its own.

The 10-week rule is absolute. Locum work must be pensioned within 10 weeks of the end of the period concerned, via Locum A and Locum B forms submitted to PCSE. Forms arriving later are rejected and that income becomes permanently non-pensionable. There are no exceptions, including for sickness. This is the most common and most avoidable way locums lose entitlement.

You pay both halves. As a freelance locum you are responsible for remitting both the employee contribution and the employer contribution to PCSE. In practice the employer element is recovered by adding it to your invoice, so your fee should be quoted inclusive of it.

All practitioner income counts. If you also hold a salaried or partnership role, your locum income does not sit in its own bubble. Practitioner income of all types is aggregated to set one tier across the lot. Officer income stays out of it.

Continuous pensionable work is worth engineering. Because annualisation bites on gaps, and because active membership preserves CPI + 1.5% revaluation, there is a real argument for spreading pensionable sessions across the year rather than clustering them — and for keeping at least some pensionable work either side of the scheme year boundary.

The tools

NHSBSA publishes an annualisation calculator each scheme year, along with guidance notes containing worked examples for locums, portfolio GPs, and overlapping posts. Given the number of edge cases, using the official calculator rather than doing it by hand is strongly advisable.

7. Other things worth knowing

Normal pension age

• 1995 Section: 60
• 2008 Section: 65
• 2015 Scheme: equal to your State Pension Age (so arguably a moving goalpost)

You can usually take benefits from 55, rising to 57 from 2028, but early retirement carries an actuarial reduction that is permanent. Because most long-serving members hold benefits across sections with different normal pension ages, retirement planning is rarely a single decision about a single date.

The McCloud remedy — see our separate article for more

If you joined the scheme on or before 31 March 2012 and were still a member on 1 April 2015, you will eventually be given a choice about how your benefits for the period 1 April 2015 to 31 March 2022 are calculated — legacy section or 2015 Scheme. This follows the courts' finding that the transitional protections given to older members were age-discriminatory.

For most people the choice is made at retirement, and no action is needed now. The exception is the tax side: if you receive a Remedial Pension Savings Statement, you must check your position with HMRC.

→ See our full guide: The McCloud Remedy Explained — why it happened, who is affected, how to weigh the two options, current timelines, and the tax implications.

Annual Allowance

The standard Annual Allowance is the limit on tax-privileged pension growth in a year. In a defined benefit scheme the figure tested is not what you paid in — it is the growth in the capitalised value of your promised pension, calculated using a prescribed multiplier.

This matters because a promotion, a large pay increase, or a jump in pensionable earnings can produce an Annual Allowance charge that bears no relationship at all to the cash you contributed. High earners are additionally subject to a tapered allowance.

The Scheme Pays facility allows an Annual Allowance charge to be settled by the scheme in exchange for a permanent reduction in your benefits, rather than paid from your own pocket. Deadlines apply.

The Lifetime Allowance was abolished in April 2024 and replaced with allowances governing tax-free lump sums.

Death and ill-health benefits

Membership is not solely about retirement. It includes:

• Life assurance — a lump sum on death in service, typically twice actual pensionable pay
• Survivor pensions for a spouse, civil partner, or qualifying partner
• Children's pensions
• Ill-health retirement, in two tiers depending on severity

Keep your nomination of beneficiary form current with NHSBSA. It is a five-minute job that is routinely neglected and occasionally very costly.

Ways to increase your benefits

• Additional Pension (AP) — buy a defined block of extra annual pension
• ERRBO (Early Retirement Reduction Buy Out) — pay more now to reduce or remove the actuarial reduction for retiring before your normal pension age
• Money Purchase AVCs — a separate, genuinely invested pot alongside the main scheme

The commutation trade-off

You can exchange annual pension for a tax-free lump sum at a rate of £12 of lump sum for every £1 of annual pension given up. This is widely regarded as poor value in pure actuarial terms, since inflation-linked income for life is worth considerably more than twelve times its annual amount. Whether it suits you depends on your circumstances, tax position, and what you intend to do with the cash.

Opting out

You can opt out at any time. Given the 23.7% employer contribution, the guaranteed CPI + 1.5% revaluation, and the ancillary death and ill-health cover, this is rarely advantageous. The main situations in which it is genuinely considered involve Annual Allowance charges at high income levels — and even then, alternatives such as Scheme Pays usually deserve examination first.

8. Common questions

Can I see how much is in my NHS pension? No, because there is no "in". You can see how much annual income you have accrued, via your Total Reward Statement or an NHSBSA estimate. That figure is an entitlement, not a balance.

Can I transfer my NHS pension into a private pension or a SIPP? No. Transfers out of unfunded public service schemes are not permitted.

What happens to my pension if I leave the NHS? It stays where it is and remains payable. It becomes deferred and switches from CPI + 1.5% revaluation to CPI only. You claim it when you reach the relevant normal pension age.

Is overtime pensionable? For most staff, no. Basic pay, unsocial hours enhancements, High Cost Area Supplements, and recruitment and retention premia generally are. Expenses, car allowances, and one-off non-consolidated payments are not.

I'm part-time — am I penalised? Not in the 2015 Scheme for officer members. Your tier is based on actual pensionable pay, and you accrue 1/54th of what you actually earn. Practitioners are a different matter — see annualisation above, which does create genuine unfairness for part-time locums.

Does the NHS pension affect my State Pension? No. They are separate and you receive both.

I work through a limited company — can I pension that income? No. Locum work must be undertaken as an individual to be pensionable. This is a real and often overlooked trade-off in the decision to incorporate.

I missed the 10-week deadline. Is there anything I can do? No. That income is permanently non-pensionable. It is worth building a routine that submits forms monthly rather than relying on memory.

Should I opt out because of Annual Allowance charges? Investigate Scheme Pays first, and take regulated advice. Opting out surrenders an employer contribution of 23.7% plus valuable ancillary cover, which is a very high price for solving a tax problem that may have other solutions.

What happens to my pension if I die before retiring? A lump sum death-in-service benefit is payable, typically twice your actual pensionable pay, along with survivor and children's pensions where applicable. Ensure your nomination form is up to date.

9. Where to go for official guidance

Rates, thresholds, and rules change annually. Always verify current figures against the primary sources.

NHS Business Services Authority (NHSBSA) — the scheme administrator and the authoritative source for members. nhsbsa.nhs.uk/member-hub Includes the Cost of being in the Scheme page, the full 2015 Scheme members' guide, estimate request forms, and the practitioner section carrying the annualisation calculators and guidance notes.

Primary Care Support England (PCSE) — where GP locum pension forms are submitted and where practitioner contributions are administered. pcse.england.nhs.uk

NHS Employers — publishes the confirmed member and employer contribution tables each year. nhsemployers.org

British Medical Association — practical guidance for sessional and locum GPs, including annualisation, tiering, and form deadlines. bma.org.uk

MoneyHelper — free, impartial, government-backed pensions guidance. moneyhelper.org.uk

Total Reward Statement portal — your own personal record of accrual and contributions.

Related guides

The McCloud Remedy Explained — if you joined the scheme on or before 31 March 2012, the choice you'll be offered for your 2015–2022 service.

A note on advice

This article is general information about how the NHS Pension Scheme operates. It is not regulated financial advice and does not account for anyone's individual circumstances. Decisions involving Annual Allowance charges, McCloud choices, commutation, early retirement, or opting out have significant and often irreversible consequences, and are worth discussing with an independent financial adviser who has genuine experience of NHS pensions specifically — the scheme is unusual enough that general pensions expertise is not always sufficient.