How could the NHS Pension contributions review affect me?
The Government has reviewed the costs and benefits of the NHS Pension Scheme and found some disparity between contribution levels and benefit levels.
The Government Actuary’s Department (GAD) calculated that NHS Pension members can generally expect to receive around £3 to £6 in pension benefits for every £1 contributed. For example, a junior doctor with membership wholly in the 2015 Scheme (retiring at 68) can expect a pension of around £62,800 per year if they progress to be a full-time consultant, whilst a similar junior doctor progressing to be a part-time consultant can expect a pension of around £53,700 per year. Junior doctors progressing to be GPs can expect a pension of around £53,700 per year.
To build up these benefits, members pay contributions and their employer must also contribute to the scheme. Employers contribute more towards the cost of the scheme than members, with a current contribution rate of 20.68%. Member contributions are tiered according to income, with the rate paid by the lowest earners being 5% and the highest 14.5%, for those earning £111,377 and above. On average, members are required to pay 9.8% of their salaries in member contributions.
THE GOVERNMENT DECIDED THAT NHS PENSION CONTRIBUTION RATES NEEDED TO BE CHANGED TO MAKE THEM FAIRER FOR ALL INCLUDING: –
- Changing the contributions from being based on Whole Time Equivalent Pensionable Pay to being based on Actual Pensionable Pay. Many part-time employees will pay a lower contribution rate as a result of this change.
- Introducing a new contribution structure, reducing the steepness of the tiering and creating a flatter structure by reducing the contribution tiers from 7 to 6, whilst increasing the lowest contribution rate and reducing the highest contribution rate at the same time.
The table below shows the current rate of contributions, and changes to be introduced in phase one (October 2022) and phase two (date yet to be confirmed).
| CURRENT | PHASE 1 | PHASE 2 | |
|---|---|---|---|
| Pensionable pay | Contribution rate based on whole-time equivalent pensionable pay | Contribution rate from 1 October 2022 based on actual pensionable pay | Contribution rate based on actual pensionable pay |
| Up to £13,231 | 5% | 5.1% | 5.2% |
| £13,232 – £15,431 | 5% | 5.7% | 6.5% |
| £15,432 – 21,478 | 5.6% | 6.1% | 6.5% |
| £21,479 – £22,548 | 7.1% | 6.8% | 6.5% |
| £22,549 – £26,823 | 7.1% | 7.7% | 8.3% |
| £26,824 – £27,779 | 9.3% | 8.8% | 8.3% |
| £27,780 – £42,120 | 9.3% | 9.8% | 9.8% |
| £42,121 – £47,845 | 9.3% | 10% | 10.7% |
| £47,846 – £54,763 | 12.5% | 11.6% | 10.7% |
| £54,764 – £70,630 | 12.5% | 12.5% | 12.5% |
| £70,631 – £111,376 | 13.5% | 13.5% | 12.5% |
| £111,377 and above | 14.5% | 13.5% | 12.5% |
HOW WILL THIS AFFECT MY TAKE HOME PAY IF AN AGENDA FOR CHANGE (AFC) PAY RISE MOVES ME INTO A HIGHER TIER LEVEL?
The new proposal includes increasing the tier boundaries each year in line with AfC pay awards. This is a safeguard intended to reduce the likelihood of a member moving to a higher contribution tier as a direct result of a national pay award, which has previously resulted in the individual taking home less pay.
I EARN MY INCOME FROM A NUMBER OF PART-TIME EMPLOYMENT POSITIONS. HOW DOES THIS WORK FOR ME?
Although employers believe aggregating income from multiple employments would be a fair approach to setting member contribution rates, if the process can’t be fully automated, it would create significant additional work for employers locally. The Department for Health and Social Care (DHSC) has decided to postpone aggregation to allow more time to develop the solutions and processes required to administer aggregation effectively.
IF I EARN MY INCOME FROM DOING WORK ON THE BANK, HOW IS MY CONTRIBUTION CALCULATED?
Members who routinely do work on the bank (i.e. contracted through a third-party organisation) will have their contribution rate based on their previous year’s annual rate of pensionable pay. Guidance will be provided to employers to help determine the appropriate rate for bank staff in their first year doing bank work, based on an estimate of the likely earnings over the course of the pension scheme year.
PROTECTING YOUR INTERESTS
If you need advice and guidance about how changes to pension contributions will affect you, or you have any other queries about your NHS Pension or other financial issues then please contact our friendly team of specialist healthcare sector accountants for a no-obligation consultation.
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