Final salary pension scheme saved after four years of negotiations

The deal, which has been signed off after four years of negotiations between government, NHS Employers and all NHS employee unions, will see all NHS employees other than those on the lowest pay having to pay more for their pension.

Staff contributions will rise by at least half a percentage point, but higher earners will see bigger increases (see list below). The changes will come into effect from April 2008. The current universal employee contribution of 6 per cent for all will be scrapped.

However, under the new deal very senior managers and doctors will be able to enjoy bigger pensions, as the current£112,800 cap on pensionable earnings will be lifted.

The tiered system has been agreed as part of the negotiators' effort to protect the NHS final salary scheme. This has been retained but will now be calculated differently. Instead of basing the pension on the best of the last three years of pensionable pay, it will be based on the average of the three best consecutive paid years out of the final 10 years of service. This will allow people nearing retirement to take a pay cut without it affecting their pension.

Although personal contributions have risen, employer contributions will stay at the current level of 14 per cent. This should help contain costs - it had been estimated that a hike in these contributions would have seen employers' pension costs - currently£4.3bn a year - rising by£1.2bn a year in 20-40 years.

The Treasury would not have signed off a deal that did not limit future pressure on the public purse.

NHS Employers pensions negotiating team chair David Jordison said: 'Staff and employers told us they wanted to keep the final salary scheme, although employers were anxious to prevent costs spiralling.

'We will be keeping the final salary scheme for both new and existing staff. We have also capped employers' contributions to ensure this agreement is affordable to the taxpayer.'

The age at which existing NHS pension members can take their pension will remain at 60 - but for new members will rise to 65. The minimum age at which staff can take their pension will also rise from 50-55.

Under the new scheme, members will also be able to buy additional annual pension of up to£5,000 a year, although the option of being able to buy added pension years will be scrapped.

How employee contributions will change

Annual pay (full-time equivalent) Current contribution New contribution

Up to£19,165 6% (5% if manual) 5%

£19,166-£63,416 6% (5% if manual) 6.5%

£63,417-£99,999 6% 7.5%

£100,000-plus 6% 8.5%