How your NHS pension is calculated: A simple guide
Your NHS pension is calculated based on which scheme you are in. For most active members, it's the 2015 CARE scheme, where each year you add 1/54th of your pensionable pay to your pension pot. This pot is then increased in value each year until you retire, protecting it against inflation.
While that’s the short version, the full picture involves your contributions, your employer's contributions, and how older pension schemes might still affect what you receive. Let's walk through it step by step.
Understanding the 2015 NHS Pension Scheme
Since 1st April 2022, all active members of the NHS Pension Scheme build up their pension in the 2015 Scheme. If you joined the NHS after this date, this is the only scheme you will have been in.
The 2015 Scheme is a 'Career Average Revalued Earnings' or CARE scheme. This sounds technical, but the concept is straightforward:
- It's based on your career average: Unlike older 'final salary' schemes, your pension is based on your earnings in each year you are a member, not just your salary at the end of your career.
- You build a pot year by year: For every year you are a member, you earn a pension equal to 1/54th of your pensionable pay for that year. This amount is added to your pension pot.
- Your pot grows over time: While you continue to work for the NHS, the pension pot you've built up is 'revalued' (increased) every year. This is done to ensure its value keeps pace with inflation. The revaluation rate is tied to the Consumer Price Index (CPI) plus an extra 1.5%.
Your Normal Pension Age (NPA) in the 2015 Scheme is the same as your State Pension age. You can take your pension before this, but it will be reduced. Equally, if you take it later, it will be increased.
How much do you and your employer contribute?
Your pension isn't free; you pay a percentage of your salary towards it each month. Your employer, however, contributes a much larger share, making it a hugely valuable part of your total reward package.
Your contributions
Your contribution rate is tiered based on your actual pensionable earnings. This means people on lower pay bands contribute a smaller percentage of their salary than those on higher bands. These rates are updated periodically. The contribution tiers from 1 April 2025 are set to be:
| Pensionable Earnings | Contribution Rate |
|---|---|
| Up to £13,259 | 5.2% |
| £13,260 to £27,288 | 6.5% |
| £27,289 to £33,247 | 8.3% |
| £33,248 to £49,913 | 9.8% |
| £49,914 to £63,994 | 10.7% |
| £63,995 and over | 12.5% |
It's important to check the latest rates with NHS Pensions or your payroll department, as they can change. Your pension contribution is taken from your pay before tax, which gives you tax relief.
Your employer's contribution
Your employer currently contributes 23.7% of your pensionable pay into the scheme. This is a significant amount that you don't see on your payslip but which plays a vital role in funding the pension you will eventually receive. Part of this figure (2.6%) is paid centrally to manage the scheme, but the total employer commitment remains the same.
A quick look at the older 1995 and 2008 Schemes
If you joined the NHS pension scheme a long time ago, you might have built up benefits in one of the older 'final salary' schemes. While you no longer build up pension in these sections, the benefits you've already earned are protected.
- The 1995 Section: This gave you a pension of 1/80th of your final pay for each year of service. It also included an automatic tax-free lump sum of three times your annual pension. The Normal Pension Age was 60.
- The 2008 Section: This gave you a pension of 1/60th of your final pay for each year of service. It did not include an automatic lump sum, but you could choose to exchange part of your pension for one. The Normal Pension Age was 65.
The benefits you earned in these schemes are calculated based on your pay when you eventually leave the NHS or retire, not your pay when the schemes closed. This is a key protection for long-serving staff.
The McCloud Remedy: Choosing your benefits
You may have heard of the 'McCloud remedy' or 'Deferred Choice Underpin'. This relates to the transition from the old schemes to the 2015 Scheme and is designed to ensure no eligible members lose out.
If you were a member of the pension scheme on or before 31 March 2012 and were still a member on 1 April 2015, this applies to you. For the service you worked between 1 April 2015 and 31 March 2022, you will get a choice when you retire.
You can choose to have these seven years of service calculated based on the rules of your old scheme (1995 or 2008) or the rules of the 2015 Scheme. This is a 'deferred choice' because you make the decision at the point of retirement, when you can see which option is better for you. The NHS Business Services Authority will provide you with a comparison to help you decide.
A worked example: Calculating your annual pension
Let's look at a simple example to see how the 2015 Scheme works in practice. Meet Alex, a Band 6 paramedic with pensionable pay of £40,000 in their first year in the scheme.
- Year 1 Pension Accrual: Alex earns 1/54th of their pay as pension. So, £40,000 / 54 = £740.74. This is the amount of annual pension Alex has earned for this year, which will be paid every year in retirement.
- Revaluation: At the start of the next financial year, this £740.74 is revalued. Let's imagine the CPI inflation rate is 2%. The revaluation rate is CPI + 1.5%, so 3.5%. The pot from Year 1 is now worth £740.74 x 1.035 = £766.67.
- Year 2 Pension Accrual: In the second year, Alex gets a pay rise and their pensionable pay is now £41,500. They earn a new slice of pension for this year: £41,500 / 54 = £768.52.
- Total Pension Pot: At the end of Year 2, Alex's total pension pot (the amount of annual pension they've earned so far) is the revalued amount from Year 1 plus the new amount from Year 2. That's £766.67 + £768.52 = £1,535.19.
This process repeats every single year you're in the scheme. The total of all these revalued 'pots' is the annual pension you will receive when you retire. You can see how your pension can build into a substantial sum over a long career.
Other factors that affect your pension
Several other elements can influence your final pension amount. It's worth being aware of them.
- Part-time work: If you work part-time, your pension is calculated in exactly the same way (1/54th of your pay), but it's based on your actual part-time earnings, not the full-time equivalent salary.
- Additional Pension: You can choose to boost your pension by buying Additional Pension (AP) through regular deductions from your salary.
- Early or late retirement: As mentioned, taking your 2015 Scheme pension before your State Pension age means it will be actuarially reduced. Taking it later means it will be increased.
- Lump sum: The 2015 Scheme doesn't provide an automatic tax-free lump sum. However, you have the option to give up part of your annual pension in exchange for a one-off tax-free cash payment when you retire. For every £1 of annual pension you give up, you get £12 of lump sum.
Understanding your total reward package, including your pension, is vital for financial planning. You can use tools like an NHS take-home pay calculator to see how pension contributions affect your monthly pay.
Key takeaways
- The current NHS Pension is the 2015 CARE Scheme, where you build a pension pot based on 1/54th of your earnings each year.
- Your pension pot is revalued annually by CPI + 1.5% while you are an active member, protecting it from inflation.
- You and your employer both contribute, with your employer paying the larger share (currently 23.7%).
- Your contribution rate is tiered based on your salary, ranging from 5.2% to 12.5% from April 2025.
- If you were in the scheme before 2012, the McCloud remedy gives you a choice at retirement for your service between 2015-2022.
- Your Normal Pension Age in the 2015 Scheme is your State Pension age.
- You can track your pension's growth via your Total Reward Statement (TRS) or Annual Benefit Statement (ABS).