Public sector employees – such as NHS workers, teachers, and those in the civil service – usually pay into defined benefit pension schemes, often considered the ‘gold standard’ of pensions.
This type of pension pays you a guaranteed income when you retire that’s typically based on your final salary and the number of years you’ve belonged to the scheme. This makes defined benefit pensions extremely valuable, and they are now a rarity because they are expensive for employers to provide.
Some of the biggest public sector pension schemes changed their rules in 2015 following government reforms, now basing pension benefits on ‘career average earnings’ rather than final salary. However, the government has launched a consultation to make the NHS retirement scheme more attractive to staff who have left the health service to allow them to rejoin the pension scheme. Find out more about how these proposed changes work below.
Here, we explain what you need to know about how public sector pensions work, and where to go for further information on how much you can expect to receive at retirement.
If you’re considering getting professional financial advice, Unbiased is offering Rest Less members a free pension review. It’s a chance to have a qualified independent financial advisor (IFA) take a look at your pension arrangements and give an unbiased assessment of your retirement savings.
The review is free and without obligation, but if the IFA feels you’d benefit from paid financial advice, they’ll go over how that works and the charges involved.
What you need to know about public sector pensions
1. Your pension doesn’t usually depend on a pot of money you’ve saved
The majority of public sector pensions are defined benefit pension schemes, which use a special formula to calculate your retirement income, which is usually based on your salary at retirement, or average of your salary across your working life, multiplied by the number of years you’ve belonged to the scheme. Read more about how defined benefit pensions work in our article What is a defined benefit pension?
For example, let’s assume the scheme takes a proportion of your salary as pension for each year of service (known as the ‘accrual rate’). An accrual rate may be 1/80, so if you spend 20 years paying into the pension scheme, your public sector pension would pay you 20/80, or a quarter of your final salary (or ‘career average earnings’) at retirement. This means that if you received a salary of £60,000, you’d get £15,000 as a retirement income. The pension will pay you a retirement income from the scheme’s retirement age, which typically must be before age 75, until you die.
At retirement, you’ll also usually receive a tax-free lump sum, alongside your guaranteed income for life. The amount you take as a lump sum may vary, but is usually a maximum of 25% of your pension’s value. Bear in mind that the amount you take will affect how much income you get, but it depends how your particular scheme works.
2. Pension freedoms don’t apply to public sector defined benefit pensions
The ability to do as you wish with your retirement pot from age 55 only applies to defined contribution, or money purchase pension schemes. Read more in our article What is a defined contribution pension?
Public sector defined benefit pension schemes work completely differently, paying out a set income in retirement. The scheme sets your retirement date, or when you can take pension benefits, which will typically be later than age 55. However, it may be possible to take your pension income early, depending on the scheme rules, although you are likely to receive a lower income as the pension may have to pay out for a longer time period.
3. You usually can’t transfer out of public sector pension schemes
When you transfer out of a defined benefit pension, you effectively swap your guaranteed income in retirement for a cash lump sum in a defined contribution pension. It’s really important to seek professional financial advice if you’re considering taking this step, but some public sector schemes for teachers, police, firefighters, NHS staff, civil servants and the armed forces can’t be cashed in even if you wanted to.
You can usually only transfer out of a ‘funded’ public sector pension scheme. This means that the retirement incomes these schemes pay out comes from a central fund. However, this only applies to a minority of public sector pension schemes, such as the Local Government Pension Scheme, and transferring out is unlikely to be in your best interests. Most public sector pension schemes are ‘unfunded’, which means they pay retirement incomes from taxpayer’s money, rather than a central fund.
If you really want to transfer out of a defined benefit pension scheme to make it easier to access your cash from age 55, for example, the amount you can move will depend on your pension’s current transfer value. However, beware that this value may be far lower than you would have ultimately received at retirement from the public sector scheme. You must get professional financial advice before moving a defined benefit pension that’s worth over £30,000. Read more in our article Should I transfer out of my final salary pension?
If you’re unsure whether your public sector pension scheme is funded or unfunded, and you want to find out your options, you should contact your employer or check the scheme’s website for the details.
4. They are really valuable
Public sector pension schemes typically provide greater benefits in retirement than defined contribution pensions. You receive a generous, guaranteed income for life, which is likely to be more than you could get from the majority of workplace pension schemes. While defined contribution schemes are flexible, as you can do as you want with the money from age 55, they are unlikely to provide as much income as a public sector pension.
5. Potential for NHS pension reforms
The government in December 2022 launched a consultation on changes to the NHS pension scheme that are aimed at keeping GPs and other senior doctors in work. These would enable retired or semi-retired doctors to return to work while drawing down part of their pension, and continuing to build up their pension benefits. Proposals include removing limits on the hours recently retired staff can work, allowing retired staff to re-join the pension scheme, and fixing issues that have seen senior doctors face hefty tax bills against the £40,000 pension tax annual allowance. Find out more about the impact of pension allowances on NHS pension scheme members below.
The proposals would also allow GPs and general practice staff working in primary care networks to access the NHS pension scheme. The consultation will be open for eight weeks and reforms are expected to come into force in late spring 2023. You can find out more about the proposals on Gov.uk.
Steve Barclay, the health secretary, said: “We need a system where our most experienced clinicians don’t feel they have to reduce their workload or take early retirement because of financial worries. I also want to make it easier for staff that want to return to work to support the NHS to be able to do so without penalties.”
How some public sector pension schemes work
The six largest public sector pension schemes in the UK are the armed forces, civil service, NHS, teachers, police and firefighters’ schemes.
However, following government reforms in April 2015, these schemes changed from final salary to career average pension schemes, although some employees could remain in the final salary pension depending on when they joined the scheme and how long they had until retirement.
Here, we look at a few of the main public sector pension schemes, and how they work.
Teachers’ Pensions Scheme
If you’re a member of this scheme, you may receive a pension based on your final salary, or your career average salary (or both). The amount you receive will depend on what type of scheme member you are, although any new members (who joined the scheme on or after 1 April 2015, when the career average scheme was introduced) will be solely in the career average scheme.
Which type of Teachers’ Pension do you have?
You will fall into one of the following categories, and further information on how each works can be found here:
‘Protected’ scheme members
If you were contributing to the Teachers’ Pensions scheme on or before 1 April 2012, and were 10 years or less away from the scheme’s pension age on that date, you will be in the old final salary scheme until you retire. The only reason this may change is if you have a break in service of more than five years.
‘Tapered’ scheme members
If you were contributing to the scheme before 1 April 2012, and more than 10 years but less than 13.5 years away from retirement age on that date, you’ll have been moved into the career average scheme. Your exact transition date to this scheme depends on your age on 1 April 2012, so you may receive a combination of a final salary and career average salary pension in retirement.
‘Transition’ scheme members
If you were more than 13.5 years away from your pension age before 1 April 2012, you’ll have been enrolled into the career average scheme on 1 April 2015. You’ll receive a combination of a final salary and career average salary pension in retirement.
‘New’ scheme members
If you joined the scheme on or after 1 April 2015 you’ll have been enrolled into the career average pension scheme.
How much you pay into the Teachers’ Pensions Scheme
You’ll pay a certain percentage of your salary into the scheme, depending on how much you earn, which is topped up by employer contributions. You’ll also receive tax relief on contributions. Below are the contribution rates for the 2023/24 tax year.
| Salary | Contribution percentage of salary |
| Up to £32,135.99 | 7.4% |
| £32,136 to £43,259.99 | 8.6% |
| £43,260 to £51,292.99 | 9.6% |
| £51,293 to £67,979.99 | 10.2% |
| £67,980 to £92,697.99 | 11.3% |
| £92,698 and above | 11.7% |
When will you get your Teachers’ Pension?
New members of the scheme will receive their pension at either State Pension age, or 65, whichever comes later.
However, you may start receiving your pension at age 60 if you remained in the final salary pension as a ‘protected’ member and you were employed before 1 January 2007. If you started contributing to the scheme after 1 January 2007, your final salary retirement age will be 65.
If you’re a ‘tapered’ or ‘transition’ member, with benefits in both the final salary and career average schemes, you receive your pension at different retirement ages. Your final salary pension will be paid as above, while your career average pension will be paid at State Pension age or 65, whichever comes later.
How much income will you receive?
If you’re in the career average pension scheme, you’ll build a pension of 1/57th of your salary each year while you are a scheme member. This will accumulate into an annual income when you retire. You won’t receive an automatic lump sum but you can ask to receive one, although bear in mind that doing so will reduce your retirement income.
If you’re in the final salary scheme, there’s a particular formula for calculating how much you receive depending on which part of the scheme you are in (retirement age 60 or 65). The rate at which you build up pension benefits will be either 1/80th of your salary if your retirement age is 60, or 1/60th if your retirement age is 65. Find out more about calculating the amount you’ll receive here. You’ll only receive an automatic lump sum when you start receiving an income from the final salary scheme with a retirement age of 60. You can find more information on lump sum payments here.
What happens to your Teachers’ Pension when you die?
If you die while you’re employed, your dependents will receive a lump sum equal to three times your salary. If you’re married or in a civil partnership, your partner receives your pension payments for three months, after which they’ll be paid a reduced income until they die.
If you’re already collecting your pension, the rules are different. The scheme will pay out an amount worth five times your income on death to your loved ones, minus the pension income you have so far received.
If you die after leaving your job, but before reaching pension age, the amount paid will depend on what arrangements were in place when you left the scheme (and how long you were a member).
NHS Pension Scheme
There are three different parts to the NHS pension scheme, which can make it difficult to understand. The way it works and how much you receive in retirement depends on when you joined the scheme. The final salary scheme includes the 1995 and 2008 sections, while the latest 2015 version is a career average scheme, which is less generous.
If you were paying into the original scheme, you may have been moved into the career average scheme from 1 April 2015, when the rules changed. However, some members qualified for ‘full protection’ or ‘tapered protection’ depending on how close they were to retirement, enabling them to remain a member of the final salary scheme, or move into the career average earnings scheme at a later date (you can work this out using this NHS Tapered Protection table).
However, the rules around which part of the scheme you are in can be complicated, and there have been several shake-ups over recent years, so it’s important to get in touch with your scheme administrator to find out where you stand.
How much will you pay into the scheme?
The Department of Health and Social Care (DHSC) has announced changes to the amount that members contribute to their NHS pension. The pensionable pay ranges have been updated to determine how much you’ll contribute, and the percentage of your pay that’ll go into the scheme. The changes are being phased in, starting in October 2022 and continuing into 2023, and are as following:
| Pensionable salary range from 1 October 2022 | Contribution rates from 1 October 2022 | Future planned contribution rates |
| Up to £13,246 | 5.1% | 5.2% |
| £13,247 to £16,831 | 5.7% | 6.5% |
| £16,832 to £22,878 | 6.1% | 6.5% |
| £22,879 to £23,948 | 6.8% | 6.5% |
| £23,949 to £28,223 | 7.7% | 8.3% |
| £28,224 to £29,179 | 8.8% | 8.3% |
| £29,180 to £43,805 | 9.8% | 9.8% |
| £43,806 to £49,245 | 10% | 10.7% |
| £49,246 to £56,163 | 11.6% | 10.7% |
| £56,164 to £72,030 | 12.5% | 12.5% |
| £72,031 and above | 13.5% | 12.5% |
When will you get your NHS pension?
You’ll get your NHS pension at your ‘normal retirement age’ (NRA), which depends on which section of the scheme you’re paying into. If you’re paying into the 1995 section, your retirement age is 60, but it rises to 65 for contributions to the 2008 section. However, if you’re paying into the 2015 section, your normal retirement age is your State Pension age, which is currently 66 for both men and women (rising to 67 by 2028).
You’re able to claim your NHS pension before you reach your normal retirement age, but in this scenario, the amount of income you receive will be reduced as it’ll be assumed that you’ll receive your pension over a longer period of time.
How much income will you get from an NHS pension?
Like other public sector schemes with different versions, the amount of income you’ll receive at retirement depends on which type you paid into, and you may receive an income from several different pension pots that are subject to different rules. So, for example, if you’ve paid into both the 1995/2008 sections of the scheme, your pension income will be a combination of the amount you receive from both.
1995 section: Your pension income is usually calculated as 1/80th of the highest of your salary over the last three years (the part of your salary that’s ‘pensionable’), multiplied by the number of years you’ve been paying into the scheme. You’ll also get a lump sum equal to three times your annual pension. If you wish, you can give up some of your pension in exchange for a higher lump sum.
2008 section: Your pension income is based on the average of your highest three consecutive years’ salary over the last 10 years of your career. It amounts to 1/60th of this pay for each year you’ve been a member of the scheme. You can usually take up to 25% of your pension fund as a tax-free lump sum.
2015 ‘career average’ scheme: Your pension income is based on several calculations, building up as 1/54th of your earnings each year you’re paying into the scheme. Your pension is also increased each year by a certain rate, known as ‘revaluation’, before retirement. This rate is determined by HM Treasury and is based on the Consumer Prices Index measure of inflation plus 1.5%.
What happens to your NHS pension when you die?
The amount your loved ones receive on your death depends on which part of the scheme you’re a member of, and the circumstances of your death. However, generally, you’re able to nominate your spouse, civil partner or partner to receive a lump sum on death which is usually equal to around two times your salary. They may also receive a dependant’s pension worth between 33% and 50% of your pension for the rest of their lives, which kicks in six months after death. If you have children under the age of 23, they may receive a children’s pension worth around 17% of your pension. Find more information here.
Pension allowances and the NHS Pension Scheme
Last year, concerns were raised by Consultants and GPs over pension taxation rules around the Lifetime Allowance and Annual Allowance. The issue raised twas that the highest-earning members of the NHS pension scheme were paying at least 13.5% contributions into their pension, making it more likely they will breach the allowance of £1,073,100 over the course of their careers.
In response to this, from 6 April 2023, the Lifetime Allowance was abolished in a bid to encourage pension savers, and particularly NHS consultants and GPs, to stay in work longer without worrying about additional tax charges.
Similarly, the Annual Allowance, which is the amount you can save every year into your pension and receive tax relief on, increased to £60,000 in the 2023/24 tax year. However, if you’re a particularly high earner, you may get a lower ‘tapered’ Annual Allowance. For every £2 of income you receive over £260,000, you’ll lose £1 of your annual allowance, down to a minimum of £10,000. Find out more about pension allowances in our guide How do pension allowances work.
Civil Service Pension Scheme
Like other public sector pension schemes, there are various different types (five in total) of Civil Service Pension Schemes. Four versions are final salary schemes: Classic, Classic Plus, Premium and Alpha. However, Nuvos is a ‘career average’ scheme, so your pension income is calculated differently to the final salary schemes.
Meanwhile, the civil service Partnership scheme is entirely different. It’s a defined contribution pension with employer contributions, and new employees have the option of joining this if they want. You do not have to pay into this pension (unlike the other schemes) but your employer will still make contributions. If you do pay into the pension, your employer will match your contributions up to a maximum of 3% of your salary. However, your income in retirement isn’t guaranteed, as it depends on the amount you contribute and the performance of your pension investments. Read more in our article What is a defined contribution pension?
Before September 2002, there was only one type of pension on offer to civil servants, called the Principle Civil Servant Pension Scheme (PCSPS). This was replaced by the Premium scheme, with the old scheme renamed Classic, and a third was also introduced, called Classic Plus.
People joining the civil service from 30 July 2007 were enrolled in another scheme, called Nuvos, with the most recent version, Alpha, introduced from April 2015.
There’s a useful table showing the key features of each type of arrangement here, detailing how the different schemes work, and where to find more information on each type.
How much will you pay into the scheme and how much will you receive?
Below are contribution rates for the Civil Service Pension Scheme for the 2023/24 tax year.
| Earnings | Contribution % |
| £0 to £32,000 | 4.6% |
| £32,001 – £56,000 | 5.45% |
| £56,001 – £150,000 | 7.35% |
| £150,001 + | 8.05% |
The amount you will receive from your Civil Service Pension is based on a range of factors. For the final salary versions, for example, it’s based on the number of years you worked and were a member of the pension scheme, your salary, and the rate at which you build up pension benefits, known as the accrual rate, which is a fraction of your salary (usually 1/60 or 1/80). There are some useful member calculators which can help you work out your entitlement.
Where to go for more information
If you have a particular question about your public sector pension, such as how much you’re contributing, how it works and the amount you will receive in retirement, contact your employer’s pension department or Human Resources and they might be able to help, or can refer you to your pension scheme administrator.
You can also find more information on public sector pension schemes on various dedicated websites. For example, these include NHS Pensions, Teachers’ Pensions, Police Pension schemes, Armed Forces pensions, and the Firefighters’ Pension Scheme.
If you’re considering getting professional financial advice, Unbiased is offering Rest Less members a free pension review. It’s a chance to have a qualified independent financial advisor (IFA) take a look at your pension arrangements and give an unbiased assessment of your retirement savings.
The review is free and without obligation, but if the IFA feels you’d benefit from paid financial advice, they’ll go over how that works and the charges involved.
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