• NHS Pension Reform - Contributions Changes Delayed

NHS Pension Reform - Contributions Changes Delayed

20 May 2022

Original content provided by BDO United Kingdom

In common with most government pensions, the NHS Pension Scheme has moved to a career average revalued earnings (CARE) basis from 1 April 2022 (rather than a final salary basis). However, following consultation, the new rates of pension contribution required by NHS staff at different levels of income will not be applied until 1 October 2022.

The government says that the delay in changing contribution rates is partly in recognition of the fact that the new rates will increase contributions for staff at some pay levels at a time of high increases in the general cost of living. The changes in rates will also happen in two stages, with a second round of changes taking effect from 1 April 2023 for employees at some wage levels. In future years, the thresholds for the Tiers of pension contributions will be increased in line with annual ‘Agenda for Change’ pay awards.

Under the new system there will be only 6 Tiers of contribution rates rather than the current 7. The intention is that the majority of members will, over time, move closer to a standard 9.8% contribution rate that the government feels is appropriate for a CARE scheme accrual method pension. Although this is to be introduced very gradually, it is expected in due course to mean that lower earning staff pay more contributions and higher earners see their contributions reduced.

The majority of GPs working full time will fall into Tier 6 under the new system (earnings over £54,764) and their contributions will be set at 12.5% from 1 April 2023. For most this will be a reduction in their current contribution rate (up to 2% less).

It is important to be aware that, following the consultation, the government has decided that it will use the actual annual rates of pensionable pay to determine members’ contribution rates, instead of members’ ‘notional whole-time equivalent pay’. This will mean that many part time employees will see a fall in their contribution rates under the new arrangements, but this will not affect part time GPs who already pay contributions on their actual earnings under the practitioner part of the scheme.

However, although the new system will be based on actual earnings, where an individual has several positions within the NHS, the scheme will not yet be able to aggregate their pay for administrative reasons. Therefore, until this can be phased in, an NHS employee may find that they pay different contribution rates in relation to pay from different posts that they hold (rather than one overall rate based on their total NHS earnings). For new NHS employees, the contribution rate will be based on an estimate of their earnings for the first year of employment.

This latest delay is yet another example of how transition to the new NHS pension scheme has been fraught with complexity. Any GP who has concerns about their personal position or the impact on the practice should seek advice on both the tax and pension entitlement issues.