Roderick Ramage, solicitor, www.law-office.co.uk
published in New Law Journal (firstname.lastname@example.org) on 17 October
This article is not advice to any
person and may not be taken as a definitive statement of the law in general or
in any particular case. The author does not accept any responsibility for
anything that any person does or does not do as a result of reading it.
NHS Pension Scheme makes a mountain out of flexible retirement
The principle of the 24-hour retirement rule is
that a member of the NHS Pension Scheme to whom the policy applies may receive
retirement benefits from the scheme and return to work if these two conditions
retirement from NHS work for not less
than 24 hours; and
that the retired member does not work
for more than 16 hours per week in the first month after the pension becomes
The application of this rule is described in a
letter dated 15 August 2006 from the NHS Pensions
Agency to all NHS chief executives, payroll managers et al, written to clarify
“the rules regarding qualifying for retirement.” The letter deals with officer scheme members,
practitioner scheme members and ill health pension benefits. Although not stated expressly it is probable
that it came into effect on 6 April 2006.
This date, commonly known as A-Day is the day on which part 4 of the
Finance Act 2004 came into force and wholly reformed the basis on which pension
are taxed. The Government called it
‘simplification’ but pension lawyers call it ‘complification’.
retirement before A-Day
Before A-Day the statutory basis for pensions
started with s590 of the Income and Corporation Taxes Act 1988, which so far as
relevant reads as follows.
to subsection (1) above, the Board shall approve a retirement benefits scheme
for the purposes of this Chapter if the scheme satisfies all the conditions of
this subsection, that is to say—
(a) that any benefit for an
employee is a pension on retirement at a specified age not earlier than 60 or,
if the employee is a woman, 55, and not later than 70, which does not exceed
one-sixtieth of the employee’s final remuneration for each year of service up
to a maximum of 40;
The only relevant definition, in s612, is as
service as an employee of the employer in question and other expressions,
including “retirement”, shall be construed accordingly;
Under the pre A-Day regime, pension schemes enjoyed
favoured tax treatment if they were approved by HMRC. Since A-Day scheme approval is not required,
schemes must merely register with HMRC under s153 of the FA 2004, and schemes already
approved were registered automatically under schedule 36 of that Act. One of the former conditions for approval was
that occupational pension schemes adopt the Revenue’s prescribed model
rules. These stipulate that, in respect
of an ‘A’ class member (basically members who joined on or after 1 June 1989),
“no part of the member’s
retirement benefits is to be paid in advance of actual retirement.”
The practical effect of this requirement was that an
employee in a company pension scheme could not retire from the scheme and at
the same time continue to work for that employer. Working for another employer was no problem.
meaning of retirement
Shorter OED defines the verb “retire”, so far as relevant, as follows.
Retire 1. d. To withdraw from
office or an official position; to give up one's business or occupation in
order to enjoy more leisure or freedom (esp. after having made a competence or
earned a pension).
in its normal usage is something that a person does and requires both the
intention to retire and the act of doing so.
It is also, at least in the field of employment, used as a transitive
verb in which an employer “retires” an employee, often on the grounds of
ill-health, but usually if not always as a euphemism for dismisses. There is little guidance in the decisions of
the courts apart from Venables and others v
Hornby (Inspector of Taxes), in which
Mr Venable, being over pensionable age, had retired from executive employment
with a company and started to draw his tax free lump sums from a pension scheme
notwithstanding that he remained an unpaid director of the company. The Revenue claimed that he had not retired
and assessed him to tax on the payments.
Mr Venables’ appeal to the House of Lords failed. At paragraph 24 Lord Millett said this.
24. The Court of
Appeal accepted the revenue's argument that the taxpayer did not "retire" within the meaning of the
1970 Act. On a careful analysis of the provisions of the 1970 Act, it reasoned
means "retirement from
service as an employee" and did not extend to a change in the nature of
the service as an employee. It then asked what is meant by "service as an
employee" and answered it by reference to the provisions of section 26(1)
of the 1970 Act, which defines "employee" in relation to a company as
including any director of the company. Accordingly, it reasoned, service as an
employee of the company must include service as a director of the company, and
it followed that there is no retirement
from service as an employee for so long as the person in question continues to
hold office as a director.
This takes one no further than the normal usage of
the word and merely resolved a supposed distinction between employment and
directorship in the context of the facts of the case. The case does however show the impact of one
change made by the Finance Act 2004 with effect from 6 April 2006 (A-Day),
which is relevant to the 24-hour rule.
flexible retirement after A-Day
Under the new regime, from A-Day, there is no such
restriction to prevent member from take benefits before retirement if permitted
by the scheme’s rules, and many schemes have changed their rules to permit what
is commonly called flexible retirement, so that employees of participating
employers may retire from the pension scheme while continuing to work. There is no need for a break from work or
changing to part time work. However the
NHS Scheme’s rules have not been changed to permit flexible retirement to this
extent, and therefore retirement from work is remains a condition for drawing
pension, and it appears to be the retirement condition which has resulted in
the 24-hour rule or its current manifestation.
return to work under the NHS Scheme
is governed by rules in National
Health Service Pension Scheme Regulations, SI
1995/300, as amended, and is administered by the NHS Pensions Agency, whose
letter was quoted above. The regulations
relevant to a member’s return to work are:
any one of rules E1, E5 and L1; and
in any case rule S1(1).
first three deal respectively with normal retirement (E1), early retirement
with actuarial reduction (E5) and preserved pension for early leavers
(L1). The material words are similar in
each case, so E1 will serve to illustrate all three. So far as relevant it reads as follows.
A member who retires from pensionable
employment on or after attaining age 60 shall be entitled to a pension under
S1 provides that a pension payable to a member under E1, E5 or L1 ceases if the
member returns to work for more than sixteen hours per week within one month of
the pension becoming payable. Sub-rule
(1) reads as follows.
This regulation applies where a
pension is payable to a member by virtue of regulation E1 (normal retirement
pension), E4 (early retirement pension with employer's consent) or E5 (early
retirement pension with actuarial reduction), or a preserved pension is payable
to the member in the circumstances described in L1, and, within one month of
the pension becoming payable, the member enters NHS employment in which he is
engaged for more than 16 hours per week.
passing, although S1(1) still refers to E4, the latter was revoked by SI
is clear that the second condition, the 16 hour per week rule for the first
month after a return to work, is provided for in the NHS Scheme’s rules, but it
is not at all clear that there is any statutory authority for the first, the
the 24-hour rule - new or old?
is implied in a policy document issued by the Heart of Birmingham Teaching PCT
on 1 June 2008,
that the 24-hour rule was brought about by the National Health Service
(Pension Scheme, Injury Benefits and Additional Voluntary Contributions) Amendment
Regulations 2006, SI 2006/600, which came into force on A-Day.
It is not obvious that SI 2006/600 makes any changes which affect the
retirement and return to work regulations in SI 1995/300. Contrary to the impression which might be
gained from this some and other PCT websites, 24-hour rule is not new. A cursory search on Google reveals that on 6
December 1989 the Health Services Superannuation Branch of the Department of
Health, in a letter to family practitioner committees, described the 24 hour retirement
rule and wrote that it would not be affected by s9 of the Health and Medicines
Act 1988. The NHS Pensions Agency’s
letter of 30 October 1995 to finance directors, pension officers et al stated
that the 24-hour rule was abolished as from 6 March 1995 and any substantial
employment within one month would result in a suspension of the pension. The inference from this is that by the 1980s,
and possibly earlier, the 24-hour rule was well established. The current version of the employers’ guide
on the NHS Pension Agency’s website contains references to the
24-hour rule (part 7, section 8, paras 7.12.2, 7.13.1, and 7.13.3) but it is
undated apart from the 1999 copyright statement.
application of the 24-hour rule
following examples illustrate some circumstances in which the rule might be
1 A member retires then,
sometime later, and without any pre-planning has second thoughts and returns to
2 The same, but the second
thought came 25 hours after retiring.
3 Again the same, but the
second thought came after 23 or fewer hours.
4 A member retires with the
intention of returning to work and does so after more than 24 hours.
5 The same but in addition
the member had agreed with his or her partners in advance to return to work.
If retirement involves intent on the part of the
member to cease to work, there can be no intention to retire where the member
intends to return to work. Thus, if this
assertion is right, the examples 1 to 3 are clearly retirements (one should not
need to say ‘genuine’ retirement), although example 3 falls foul of the 24-hour
rule and would not be treated by the NHS Scheme as retirement. However neither so-called retirement in
examples 4 and 5 are retirement, but it appears that the practice is or might
be to treat them as retirement because they comply with the 24-hour rule.
That so-called retirements under examples 4 and 5
are or may be treated in practice as retirement is demonstrated anecdotally by
examples which can easily be found by Google searches on the Web, for instance
minutes of PCTs envisaging that arrangements might be made in advance to
provide cover for single handed practitioners wishing to take advantage of
24-hour retirement. Examples of this
kind show however only the practice of the employer with whom practitioners are
contracted and not the pension provider.
The NHS Pensions Agency, in its letter of 15 August
2006 giving clarification about Scheme benefits and the rules qualifying for
benefits, states, under heading 1, as follows.
a number of recent enquiries, discussions have been held with the Department of
Health who have confirmed that the underlying requirement of the NHS Pension
Scheme Regulations is that all Scheme members must demonstrate a clear
intention to retire from the NHS before NHS pension benefits are awarded.
The requirement to “demonstrate a clear intention
to retire” may support the assertion that an intent to retire is not compatible
with an intent to return to work, but, when one looks at the rest of the
letter, one finds ambiguity. Under
heading 3 (Practitioner Scheme Members) the first two paragraphs deal
respectively with partners and employees.
In both cases they cannot return to NHS work “for at least 24 hours”
which neither permits not exclude a prior intention to return to work. The third paragraph, dealing with freelance
locums, is different and says that “locums … must resign … for at least 24
hours to qualify for NHS pension benefits”, which permits a locum to say: “I
give notice of my intention to resign for 24 hours and then to return to
work”. There are similar distinctions
elsewhere in the letter.
The NHS Pension Agency’s employers’ guide, although
probably out of date, in section 8 (re-employment) expects members who return to
work to do so in a reduced capacity.
Then in para 7.15.1 it says this.
A member who simply arranges a break in employment
with the express intention of returning to that employment (and working to the
same extent) will not have ‘retired’ and will not therefore achieve entitlement
to benefits. In other words, the issue
of ‘retirement’ needs to be settled before the issue of re-employment.
Were it not for the employers’ guide, it would seem
that, in practice, although (a) there appears be no statutory basis for 24-hour
retirement, (b) the NHS Scheme’s rules require retirement, (c) retirement in
the normal use of the word does not generally include an intention to return to
work and (d) such guidance as is available is ambiguous, it is probably safe in
practice to assume that members of the NHS Scheme may retire in accordance with
the 24-hour rule having already formed an intention and made arrangements to
return to work. This conclusion is
fortified by (a) the fact that the law from A-Day pension schemes may permit
members to take retirement benefits while remaining in work and (b) the
argument that the 24-hour rule is the means, albeit bureaucratic, by which the
NHS Pensions Agency enables members of the NHS Scheme to enjoy a benefit
broadly similar to the post A-Day the flexible retirement arrangements
available to members of private sector pension schemes.
However, if the principle in para 7.15.1 of section
8 of the employers’ guide is still applied, it is likely that ‘retirement’ must
mean retirement with no intention to return to work and therefore exclude the
so-called retirement in examples 4 and 5 notwithstanding the 24-hour rule. If this is right, medical and dental
practitioners should avoid making advance arrangements with their partners for
return to work, and PCTs and single handed practitioners will be in a cleft
stick over arrangements, which must necessarily be made in advance, to provide
cover during the 24 hours of retirement and the one month of part time which
follows the start of pension benefits.
Had the Agency wished to permit the flexibility
available in the private sector (and allow its members to decide for themselves
how to balance work and retirement), it could have had the 16 hour a week for
one month rule abolished. But that would
be too simple – and would have jeopardised all the man hours of paid but
non-productive work, which the 24-hour rule has created, not just in the
bureaucracies of the Agency and PCTs, but also in other non-productive
activities and expenses, such as practitioners’ partners’ meeting,
consultations with their solicitors, seeking PCT agreement and writing and
reading articles like this.
It would be very interesting to see how the courts
would treat a member, who retired with no intention of returning to work but,
on realising his mistake on awaking the next morning, decided before the expiry
of 24 hours to return to work, and objected to the 24-hour rule, arguing for
example that it was an unlawful restriction or maladministration and, in
examples 4 and 5, simply unlawful.
copyright Roderick Ramage
click below to
Newsletters/TN2006/TN14-2006.htm (It is quicker to Google ‘nhs pension scheme’ then on the NHS Pension Scheme website to type ’24 hour retirement’ in the search box)
  UKHL 65,  All ER (D) 86 (Dec)
administration/indexZip.cfm?parent=2&id=14 (It can also be found by navigation from the home page following the link in the blue box to Decision Trees and Flowcharts for Employers to Guides and Booklets and thence to the Employers Guide.)