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Government proposes changes to members’ NHS pension contributions

Published on: 15 Oct 2021

The government has launched a major consultation that proposes changing how much members pay into the NHS pension scheme, including cuts to contributions for some staff.

Launched this afternoon, the proposals include changing members’ contribution rates to be based on actual pensionable pay rather than notional whole-time equivalent pay.

The Department of Health and Social Care has said this would mean many part-time members of the scheme would see their contribution amounts reduce, and those working part-time would “benefit” from their contributions “more accurately reflecting the amount of pension they are building”.

Other changes include the structure of members’ contributions, such as a reduction in the number of tiers to “flatten” the model, which would remove the top two tiers and create a new top tier of 12.5 per cent.

The consultation said this had been proposed because a “high level of cross-subsidy between higher and lower-earning NHS pension scheme members is no longer appropriate in the career average revalued model scheme, where all members get the same proportional benefit”.

Tiered contribution rates were introduced in 2008 to reflect that higher earners were more likely to benefit from the NHS pensions scheme than lower earners due to their final salary link.

However, the scheme has since moved to the CARE model, which is based on a member’s pensionabale pay throughout their NHS career. The pension rate earned each year is then based on actual pensionable pay in that scheme year and increased by revaluation, which is a set rate, each year up until retirement or leaving.

The DHSC said the tier changes have been designed to ensure the required yield of 9.8 per cent average member contribution is met while “protecting the affordability” of the scheme for the entire NHS workforce.

The consultation also proposes increasing the thresholds for member contribution tiers so that they are in line with annual Agenda for Change pay awards.

It said this would benefit members who find that, due to small salary increases following centrally agreed annual pay awards, they are then moved up a contribution tier and see a net reduction in their take-home pay.

The DHSC wants to phase the proposed changes to the member contribution structure over a two-year period, starting from April next year.

The consultation said: “As the NHS pension scheme has moved from final salary linked to a CARE model, all members will build up CARE benefits from 1 April 2022.

“This change ensures that the costs and benefits of the scheme are more evenly shared, and will be introduced as part of the McCloud remedy.

“As such, now is an appropriate time to seek views from all interested parties to inform changes to member contributions, with a view to preserving participation in the scheme while protecting its substantial value for members in retirement.”

The consultation will close on 7 January 2022.

Jon Restell, chief executive of the Managers in Partnership trade union, told HSJ, “broadly speaking,” they welcome the government’s proposals.

He said: “Using actual pay for determining contribution tier will be fairer to part-time members and indexing tiers to Agenda for Change pay rises will sort out a major problem which has been in the postbag from our members for years. We also believe the tiers should be flatter, although not flat, to recognise the change to career average salaries.”

“However, the government’s insistence on a 9.8 per cent yield for the pension scheme as whole means that lower banded staff will pay more. While phasing over two years eases the pain, the rises will be controversial in already fraught industrial relations in the NHS and the government should think again about using 9.8 per cent.”

Mr Restell added the “punitive effect” of the two pensions taxes, the annual allowance and the lifetime allowance, remained the “elephant in the room”. He added: “These proposals do nothing to solve this problem, which each year affects more and more staff.

“The Treasury needs to move to a fairer method of taxing pension accrual.”

UPDATED, 17.07: This article has been updated to include a comment from MiP