Employer contributions under NHS pension scheme will rise to 20.68% from April

NHS pension scheme employer contributions will rise to 20.68% from 1 April despite warnings from GPs that the move could 'compromise the sustainability of the partnership model' and threaten the viability of practices.

A government response to a consultation on the pension scheme said that having considered consultation responses and input from the Treasury, 'the department confirms that the increased rate of 20.6% (plus the 0.08% administration charge) will be implemented from 1 April 2019'.

Specialist medical accountants have warned that the change could exacerbate the GP workforce crisis by pushing doctors over the annual allowance limit for pensions earlier. GP leaders have said that tax charges from the annual allowance cap are already forcing even GPs in their 30s to reduce the number of sessions they work.

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NHS pension scheme changes could deepen GP workforce crisis

The increased rate represents a near 50% rise compared with the current employer contribution rate of 14.38% - but government actuaries say the sharp rise is 'appropriate to meet the cost of pension rights that individuals are building up'.

Pension costs

The DHSC response highlights that the government has committed to providing 'additional funding for NHS pension costs until 2023/24'. Prime minister Theresa May announced in June 2018 that in addition to a £20.5bn increase in funding by 2023/24 under the government's long-term NHS plan, the government would 'also provide an extra £1.25bn a year to cover a specific pension pressure'.

Accountants said at the time that this did not sound like enough funding to cover the cost of an increase in employer contributions to more than 20% across the NHS as a whole - but the government response says additional funding costs will be adjusted to cover the increased rate in full - at least up to 2023/24.

Although the increased employer contribution rate will apply from 1 April, for the 2019/20 tax year the NHS Business Services Authority - which administers NHS pensions - will collect just 14.38% from employers including GP practices, with the remaining 6.3% paid centrally by the government and NHS England.

From 1 April 2020 funding will be distributed to practices so that employer contribution collection can return to 'business as usual'.

Employer contributions

Deborah Wood, vice chair of the Association of Independent Specialist Medical Accountants (Aisma) said: 'Despite the widely-held concerns raised during the consultation about the financial impact of the 6.3% increase in employer pension contributions, the increased rate of 20.6%, plus a 0.08% administration charge, will be implemented from 1 April 2019.'

The transitional approach for 2019/20 meant GP cashflow would be unaffected for the financial year ahead, she said. Ms Wood added: 'It will be essential for GP practices to see a clear correlation in their funding allocations for the additional 6.3% being added to their budgets out of which they will then have to make the additional employer contributions on a regular monthly basis from April 2020 onwards.'

She said that because GPs are 'deemed to pay their own employer contribution for tax purposes' the higher contribution rate meant 'even more GPs could find themselves affected by annual allowance tax charges on a regular basis'.

The government's consultation response sets out a commitment to tackling 'cliff edges' in the NHS pension scheme - where doctors face a financial hit when a rise in income pushes them into a higher pension contribution rate. Proposals including a move to a banded system of contributions - where different rates apply to different bands of pay, as is the case with income tax in the UK - are under consideration.

Contribution rates

It also confirms that the tiered contribution rates under the NHS pension scheme will remain unchanged until 31 March 2021, and that the 'scheme pays' facility - which allows doctors to avoid paying tax charges on pensions upfront - will be allowed for 'any pension tax charge of any amount' from the 2017/18 tax year.

This means that doctors will no longer face having to pay significant tax bills triggered when they breach annual allowance limits on pensions, and can instead choose for the NHS pension scheme to cover the cost, which is then recouped over time through a reduction in the value of their pension 'by an amount equivalent to the tax charge plus interest'.

The consultation response also confirms that the government has rejected a call from the BMA for locum doctors to be exempted from annualisation.

BMA GP committee workforce lead, Dr Krishna Kasaraneni, said: 'Practices can be assured that the extra burden of the employers’ contribution to the NHS pension scheme will be directly paid for by NHS England for 2019/20.

'We will engage in discussions with NHS England to see how best to implement this going forward, taking into consideration that this is an added expense that must be factored into GP funding from next year onwards.

'Amid a growing GP recruitment and retention crisis that has been exacerbated by current pensions issues such as allowances and annualisation, we need to ensure that any changes to pensions going forward have a positive impact on the profession.'

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