Cost-of-living crisis poses ‘high risk’ to NHS pension scheme
The cost-of-living crisis is creating a “high risk” to the NHS Pension Scheme, government advisers have warned.
The NHS Pension Board assists the government’s management of the scheme. In its annual report for 2023-24, the board has summarised the risks faced by the scheme and its administration. Two “high risks” are identified.
The highest risk to the scheme is deemed to be the “cost of living and/or impacts of contribution costs, pension tax, savings offerings and similar lead[ing] to [an] increase in scheme opt-outs”.
The risk register was prepared in March 2024. At the time, likelihood of this particular risk being realised was rated at three out of five. Its potential impact was given a score of four.
The “lack of appreciation of scheme benefits” by NHS staff is described as a “moderate risk” by the board.
Recent years have seen a steep increase in NHS staff opting out of the NHS pension because they are struggling to meet contribution costs. The Times reported towards the end of last year that 75,000 workers had pulled out of the NHS pension scheme in 2022-23, including 25,000 under 30 years old. This represented a 67 per cent increase over four years.
The NHSPB report reveals: “There are 1.87 million active (contributing) members across the NHSPS with pensionable pay of over £66.6 billion per year. Pensions are paid to around 1.15 million pensioners and dependents, amounting to around £12.4 billion in total per year. A further 0.80 million members no longer contribute to the NHSPS but retain an entitlement to receive a pension at retirement.”
Staff contribution rates range from 5.1 to 13.5 per cent depending on earnings. Employers’ contribution stands at 20.68 per cent.
The other “high risk” identified in the report relates to the board’s own operations. It states the NHSPB may be “unable to fulfil regulatory requirements due to membership turnover issues or absence of chair”.
However, this risk seems to have lessened, with the government due to appoint a new NHSPB chair to succeed Helen Miles next spring. Interviews for the post took place last week.
The report said: “The NHSPS is a highly complex scheme, which presents obvious challenges in administration, but it is a hugely valuable benefit for members and is key to attracting and retaining those who work in and for the NHS.
“The NHSPS has implemented change to meet developing workplace needs, particularly in beginning implementation of partial (flexible) retirement arrangements.
“There are challenges of capacity and complexity for many pension schemes, whether in the public or private sectors, and the board has sought to balance its understanding of this in its discussions with [the NHS Business Services Authority, which administers the scheme, and the Department of Health and Social Care].”
It added: “We continue to press for important response times and service levels to be met, and for swift, orderly recovery of positions that slip from targets.”
The warning of risks to the scheme comes as concern grows that senior medics could be discouraged from working extra hours again due to excessive pension tax charges.