The UK government has confirmed that from 10 April 2023 the value of NHS pensions will increase by 10.1%, in line with the CPI inflation measure in February. This follows a 6.1% increase in 2022-23, based upon the same measure.
This was an important step, fixed by the terms of the 1971 Pensions Act. Every year pensions are revaluated to make sure the value of the savings are maintained over time. As public sector schemes like the NHS pension offer a fixed (or defined) benefit for the scheme member when they retire, it is important that the value of this benefit is maintained relative to prices.
This does not happen in a private sector scheme where the contribution is fixed (or defined) instead of the benefit. In this type of scheme the contributions are directly invested, and the relative value will depend upon how these investments perform.
This can be better than inflation in some years and potentially lower than inflation in other years. Indeed, some schemes have seen investments make a loss in the past year due to wider economic challenges. This is why the benefit from these schemes is always uncertain and can vary depending on when they are accessed.
SoR Executive Director Dean Rogers, who leads for the Society on pension issues, said: “The CPI uplift applies to pensions for retired members, those who have left the scheme and also the value of the pot for those who are still working and accruing benefits. They highlight one of the things that make the NHS pension scheme such a valuable part of the pay and reward package – and such a good way of saving.
“It would be ironic if the only people who immediately benefit from an inflation proof pay rise in the NHS are those who have already retired. This has been the case for most of the last decade. However, even those who are still being told by ministers that the country can’t afford to maintain their living standards, can be reassured that the relative value of their pension is protected.”