Trusts told to offer ‘pension recycling’

Trusts have been told to offer the option of pay rises for forgoing pension contributions for some senior staff, as part of a package of NHS pension changes announced today. 

Health secretary Therese Coffey announced in the Commons that trusts would be expected to offer pension recycling. The Department of Health and Social Care added in a later press statement that trusts would have to offer this by 2023 to “senior staff” whose pension savings have reached the lifetime allowance of £1,073,100, while providers would also be encouraged to explore other solutions in addition to this. 

Under pension recycling arrangements, trusts may pay the amount they would have contributed to an employee’s pension as additional salary instead. It is particularly popular with higher earners who have reached the limits they can save into their pension tax free.

NHS employers contribute over 20 per cent of employees’ pensionable salary into the NHS pension scheme.

However, it is currently not offered by all providers. Critics of such schemes often cite issues of fairness, as they are targeted at higher paid and more senior staff, excluding lower paid and more junior employee who may be struggling with costs of living. 

Today’s announcement formed part of a package designed to reduce the NHS backlog. Problems with tax rules’ interaction with the NHS pension scheme have previously been blamed for encouraging doctors to reduce their hours or retire from the service entirely. 

Other pensions changes announced today include:

• An option for “partial retirement” allowing staff to draw their pension while continuing to work and build additional pension. Retired staff who return to work will also be able to build more pension.this will be subject to a consultation. Flexibilities which allowed retired staff to return to work or increase working commitments without having pension benefits reduced or suspended will continue until 31 March 2025.
• Revaluing NHS pensions at a different date to avoid the high inflation rate expected this September leading to large tax bills for some NHS staff. This will apply both to this tax year and future ones.

In response to the announcement, Managers in Partnership tweeted: “Short term changes to NHS pension tax rules are welcome and what’s been set out will be useful. But they don’t go far enough to solve this in the long term.

“More must be done to ensure experienced NHS staff are not leaving the health service earlier to avoid punitive taxes.”