NHS Partial Retirement and Step Down: Taking Your Pension While Still Working

For a long time, the only way to get your NHS pension was to retire, at least briefly. Since October 2023, members have had another option: partial retirement. It lets you take some or all of your pension while you carry on working and building more pension. This guide explains how it works in general terms.

This is general information, not advice. NHS Pensions and a regulated financial adviser can explain how it applies to you.

What partial retirement is

Partial retirement lets you draw between 20% and 100% of your NHS pension while continuing to work for an NHS employer. You do not have to leave your job. It is available in the 1995 section, the 2008 section and the 2015 scheme.

To qualify, broadly you must:

• have reached the minimum pension age, currently 55 (rising to 57 from April 2028)
• reduce your pensionable pay by at least 10% for at least 12 months, with your employer's agreement
• make the reduction permanent for that period, for example by reducing hours or moving to a lower-band role

The scheme also limits how many times you can take partial retirement.

An example

Take someone aged 58 in the 2015 scheme, working full time on Band 7 at £56,515, with £16,000 a year of pension built up.

1. They agree with their employer to reduce to 30 hours a week, a 20% cut in pensionable pay.
2. They take 50% of their pension: £8,000 a year.
3. Because they are taking it before their normal pension age, the £8,000 is reduced for early payment.
4. They keep working, keep paying in, and keep building pension on their new pay.

Their income becomes 80% of their salary plus a reduced pension of up to £8,000 a year, before tax. They keep the other half of their pension to take later, along with any new pension they build.

Early payment reductions

If you take your pension before your normal pension age, it is reduced to reflect the longer time it will be paid. The reduction can be significant if you are several years early. For 2015 scheme benefits, normal pension age is your State Pension age or 65, whichever is later. For the 1995 section it is 60 for most members, and for the 2008 section 65.

Members of the 2015 scheme can buy out some or all of this reduction in advance through the early retirement reduction buy out (ERRBO). See our guide to boosting your NHS pension.

Step down

Partial retirement often goes hand in hand with stepping down to a lower band. For example, a Band 8a manager might move to a Band 7 clinical role, reducing pay by more than 10% and taking part of their pension to make up the difference. Final salary benefits in the 1995 and 2008 sections can be protected in some cases when pay reduces. Check how this works for your record before you move.

Retire and return

The other option is to retire fully, take all your pension, then return to NHS work. Rules for retire and return have been relaxed in recent years, including removing the old 16-hour limit on hours in the first month. You usually need a short break and an agreement with your employer about returning.

Tax on partial retirement

Your pension and your pay are both taxable. Taking a pension while working full or part time can push your income into a higher tax band. You may also be able to take a tax-free lump sum by giving up some pension. The pension lump sum calculator shows how commutation works.

Common questions

Can I partially retire before 55? No, except in specific circumstances such as ill-health retirement or certain protected pension ages in the 1995 section.

Will my death in service cover continue? You remain an active member while working, so cover continues on your current pensionable pay.

Does my employer have to agree? Yes. The reduction in pay must be agreed with your employer.

Questions to ask before you decide

Partial retirement is a big decision. Before you apply, ask NHS Pensions and your employer:

1. What would my pension be, with the reduction for early payment, if I take 20%, 50% or 100% of it now?
2. How would a reduction in pay affect any final salary benefits I have in the 1995 or 2008 sections?
3. Does the McCloud remedy affect my choices?
4. How would taking a pension affect my tax, including my tax code at work?
5. What happens to my death in service cover and survivor benefits?
6. Can my employer agree the reduction in hours or band I need?

Getting written answers to these questions makes it much easier to compare options with a regulated financial adviser.

Check your pension age

Use the pension age calculator to find your normal pension age in each scheme.