Are the University Superannuation Scheme (USS) and NHS pension schemes the same?
The 1995 section of the NHS pension scheme
The 1995 section of the NHS pension scheme (for secondary care doctors) and the final salary section of the USS accrue benefits on an 1/80th final salary basis. The creation of other sections to those schemes, as well as other developments, mean that the comparison is not straight forward.
The 2008 section of the NHS pension scheme
The 2008 section of the NHS pension scheme accrues benefits for secondary care doctors on a 1/60th final salary basis.
The 2015 NHS pension scheme
The 2015 NHS pension scheme uses the career average revalued earnings (CARE) scheme which no longer provides final salary benefits for any member. Instead benefits for those in the 2015 CARE scheme are based on 1/54th of pensionable earnings accruing towards the pension. Since 1 April 2022 all active prospective membership in the NHS pension scheme is in the 2015 CARE scheme.
Sections of the USS
In the 2011 section of the USS, benefits accrued on a career averaged revalued earnings basis, accruing at 1/80th of each year’s earnings.
In 2016 a hybrid USS scheme applicable to all USS members was introduced including a defined benefit section called the USS retirement income builder. This scheme is a career revalued benefits scheme.
USS retirement income builder benefits are based on your full pensionable salary up to 30 September 2016. From 1 October 2016 a salary threshold of £55,000 was introduced. This threshold is increased annually. The 2021/2022 salary threshold is £59,883.65. The Threshold was reduced to £40,000 in April 2002, and remained at a reduced rate of £41,004 during 2022/3. However the Trustees of the USS have announced that from 1 April 2024 the threshold is due to increase to £70,308 and to thereafter increase annually in line with Pensions Increases until 31 March 2028.
Contributions in respect of salary above the threshold are invested in a defined contribution section called the USS investment builder.
As such, your retirement savings within USS are made up of two parts:
- the USS retirement income builder (CRB benefits) in respect of your salary up to the threshold
- the USS investment builder (defined contribution) in respect of your salary over the threshold.
At present the NHS 2015 CARE scheme provides a defined benefit accrual for all NHS pensionable earnings whereas the 2016 USS CRB scheme only provides this up to a threshold
Read more about the changes introduced from 1 January 2024 and due in April 2024.
Your options when taking up an academic post
If you stop working for the NHS and take up an academic post with a university you may be able to continue to pay into the NHS pension scheme via what is known as a ‘direction’ arrangement. This usually applies when you go to work in the Medical School of a University.
Regardless of whether this option is available to you or not, you can consider:
- deferring your NHS pension (assuming you have at least two years’ membership in the scheme) and beginning new pension accrual in the USS
- transferring your NHS pension into the USS and beginning to accrue future service in the USS.
You will need to take into consideration many different factors before reaching a decision on which scheme to remain in or join, see below.
Read more about direction status and applying to remain in the NHS pension scheme .
Refund of your contributions
If you have less than two years' membership of either the NHS pension scheme or the USS you can obtain a refund of your contributions, less tax. Any refund of contributions would be reduced by:
- a tax payment of 20% for the first £20,000 refunded and 50% on any excess and
- an amount equal to the discount on national insurance contributions that you received whilst a member of the scheme. This payment will re-instate your entitlement to the state second pension (S2P) in respect of the period of service being refunded. In April 2016 a single tier state pension was introduced and there has been no discounted national insurance rate since then.
If you are contributing to the 2015 section of the NHS pension scheme and have accrued less than two years' service in the scheme and have a break in scheme membership of five years or more you will be required to take a refund of the earlier service, even if you subsequently return to NHS pensionable employment.
If you have less than two years service in the USS, whilst you can take a refund of contributions if you wish (as described above), you will not be compelled to do so and can retain a deferred benefit in the scheme instead.
Your accrued benefits will be deferred and not refunded if:
- you have more than two years’ scheme membership
- you have transferred benefits into the scheme from a personal pension scheme or a retirement annuity contract.
Leaving your benefits deferred
- Benefits deferred in the NHS pension scheme are increased between leaving and retirement in line with the annual increases determined under the Pensions (Increase) Act 1971.
- These deferred benefits are payable at the scheme's normal pension age/state pension age or earlier with reductions. Read more about voluntary early retirement.
- There are circumstances when deferred benefits can be paid in full before normal pension age/state pension age, for example, through permanent incapacity.
- Benefits deferred in the USS are increased in line with increases in the Pensions (Increase) Act 1971. The Trustees to the USS have made changes to the way in which USS pensions are increased. Further changes are being proposed. These have the effect of potentially capping the amount of increases applied to benefits. This is detailed below.
However:
If you were a member of the USS final salary section only, your service prior to 1 October 2011 will receive the full CPI increase. Thereafter, the proportion of your pension related to service accrued after 1 October 2011 will be increased up to a maximum of 5%. Where the increase is greater than 5%, one half of the excess above 5% will be taken into account but with an overall cap on increases of 10%.
In respect of membership after 1 October 2011, each year’s accrued pension will be increased up to a maximum of 5%. Where the increase is greater than 5%, one half of the excess above 5% will be taken into account but with an overall cap on increases of 10%.
From 1 April 2024 it is proposed that benefits accrued since 1 April 2022 will be subject to the following increases both before retirement and after: where the Pensions Increase is less than 5% it will be matched, where it is between 5% and 15% the increase will be 5% plus half of the percentage increase over 5%
Should I transfer my benefits between schemes?
Your decision on whether to transfer or not will depend on your individual circumstances. The BMA pensions department cannot advise you on this and we recommend that you seek independent financial advice before making a decision, if you are unsure as to what is best for you.
As well as the differences in the benefits provided by each scheme section (as described above), a number of other factors may need to be taken into account, such as:
Salary progression
Over time, your salary may rise faster than the rate of inflation. You may also anticipate career progression in the new job.
Salary cap
The USS retirement income builder currently has a contribution cap of £41,004 (proposed to increase to £70,308 in April 2024). Whilst the threat of closure of the defined benefit section of the USS has been removed this may arise again in the future. The NHS 2015 CARE scheme does not restrict the amount of pensionable earnings that can be used to contribute towards it.
Contribution rate
The current highest contribution rate to the NHS pension scheme (England and Wales) is 13.5% (reducing to 12.5% from 1 April 2024) The current highest contribution rate to the USS is 6.1% (reduced to this level on 1 January 2024). Whilst the USS costs less the defined benefit section is restricted to a threshold level of income.
Revaluation of in service benefits versus deferred benefits
The increases applied to active service are greater than those applied to deferred benefits.
The NHS 2015 CARE scheme accrues at 1/54th of pensionable pay (uncapped) and active revaluation is based treasury orders plus 1.5%. This means that if the consumer prices growth is nil or negative then active revaluation could be less than 1.5%.
The USS retirement income builder accrues at 1/85th of income up to the income threshold (and provides an automatic three times lump sum) and active revaluation is linked to official pensions increases and is capped at 10%. The NHS does not cap the revaluation that can apply to deferred benefits whereas the USS retains the restriction on the amount of official pensions increases it will match and this is currently set at 10%.
From 1 April 2024 the USS accrual rate is scheduled to increase to 1/75th of income up to the income threshold.
Maintenance of protection (for certain 1995/2008 section members)
An absence of five years or more from the NHS 2015 CARE scheme will result in the loss of the ‘final salary’ link to earlier benefits in the 1995/2008 NHS pension sections. Such benefits will become deferred and be subject to revaluation in line with the consumer prices index as per NHS pension scheme rules.
Loss of HMRC protections (potentially)
Enhanced and fixed protections can be lost on joining a new pension scheme. This may expose you to greater taxation on retirement if your benefits exceed the standard lifetime allowance prevailing at the time.
From 6 April 2023 members holding Enhanced Protection and Fixed Protection certificates dating prior to 15 March 2023 will no longer automatically lose their HMRC protection on joining a new pension scheme or transferring pension rights.
The lifetime allowance is due to be removed from 6 April 2024 but a limit remains on the amount of tax free lump sum that can be accessed on retirement.
Career planning
You will need to consider which pension scheme you are likely to retire from and when. Read more about accessing your pension benefits as a transitional member.
MHO status
If you hold MHO status in the 1995 section see our guidance on pensions for mental health officers.
Earnings cap
The cap was withdrawn from 2006 though some schemes and individual institutions can choose to retain a scheme specific cap.
If, before its withdrawal, you had been affected by the cap, the calculation of your benefits up to the point of the cap’s withdrawal will continue to be calculated with reference to a notional cap. This is the 2006-2007 cap of £108,600 increased in line with retail prices increases between then and your retirement date, rounded to the nearest amount divisible by £600.
In 2023/24 the notional earnings cap is £205,200.
Contact the BMA pensions department if you have any queries about the earning cap.
Moving to the NHS from a university post
No 'direction' arrangements are available if you are moving from a university post to the NHS. Your membership of the USS will end.
You may wish to consider transferring your accrued USS benefits to the NHS pension scheme as an alternative to retaining your preserved benefits in the USS, using the considerations above and within the time limit.
Leaving the USS
While you cannot directly opt out of the USS investment builder and remain in the USS retirement income builder, you can apply for an individual voluntary salary cap to restrict your pensionable salary.
If you apply for a voluntary salary cap you are required to give 28 days notice and your pay will restricted from the following 1 April.
Your personal capped pensionable salary cannot be less than the income threshold. Once this is in effect it cannot be varied or revoked until the following 31 March.
If you have less than two years' membership service in the USS you may be able to take a refund of contributions. You will not be compelled to do so and can retain a deferred benefit in the scheme instead. If all your contributions we paid via salary sacrifice you will not be able to claim a refund.
If you have less than three months contributions in the USS investment builder, your refund will be based on the amount you have paid in.
If you have paid more than three months' contributions in the USS investment builder you will receive the fund value (ie including any investment returns earned on those contributions).
If you have more than two years' membership, or if you have transferred benefits into the scheme from a personal pension scheme or a retirement annuity contract, you cannot have a refund of contributions and the accrued benefits built up in the scheme will be deferred unless you choose to transfer them out or retire.
Voluntary early retirement is available from age 55. The benefits payable from the USS retirement income builder will be reduced by 4% approximately for each year that they are being paid early.
Funds in the USS investment builder will remain invested until you retire. There is no early retirement reduction factors in relation to this.
It may be possible to access benefits from age 50 if you are redundant.
Read information on early retirement on the USS website
If you are contributing to the USS retirement income builder immediately before the normal pension age late retirement factors will apply to benefits earned up to your retirement age.
Funds in the USS investment builder will remain invested until you retire. There are no late retirement factors in relation to this.
Flexible retirement is available from age 55.
In relation to the USS retirement income builder, you can access between 20% and 80% of accrued benefits once you have reduced your hours and salary by at least 20%. You can access benefits on two occasions in this manner.
In relation to the USS investment builder, you are required to use you entire USS investment builder fund to provide additional benefits. You can continue to contribute to the USS investment builder for your ongoing employment.