NHS pension reform to cut top contribution rate but threatens 'unwelcome consequences'

Plans to overhaul NHS pensions could deliver savings for many GPs through a reduced top contribution rate but threaten pay cuts for some part-time GPs and practice staff, accountants have warned.

NHS pension reform (Photo: JH Lancy)

Proposed changes to member contributions in the NHS pension scheme will see the top rate of contributions fall from 14.5% to 12.5% over the next two years - potentially saving a GP earning just over the threshold for the top contribution rate around £2,000 a year.

Some part-time GPs, or GPs who do not work a full year, could also benefit from plans to shift the basis for calculation of contributions to actual pensionable pay rather than notional whole-time equivalent pay.

However, the changes could see contributions rise for GPs and staff in lower earnings bands, and accountants warned that pay rises would need to be 'carefully managed' to avoid pushing staff onto a higher pension contribution rate that could leave them with reduced take-home pay.

NHS pensions

Alongside the planned rise in national insurance, changes in pension contribution thresholds could mean pay rises for lower-paid staff in GP practices are 'wiped out entirely', accountants warned.

Proposed changes to NHS pension contributions were set out in a government consultation this week, and aim to reduce the number of contribution tiers as well as to 'flatten' the contribution structure, by bringing down the top contribution rate.

Reducing the number of tiers from seven to six should reduce numbers of staff finding that 'small salary increases due to centrally agreed annual pay awards can lead to moving up a contribution tier, and a net reduction in take-home pay', the consultation says.

It adds that the current top contribution rate of 14.5% should be reduced to 12.5% because after the shift in the NHS pension scheme from a final salary to a career-average model, delivering the 'same proportional benefit' to all members, 'a high level of cross-subsidy between higher and lower earning NHS Pension Scheme members is no longer appropriate'.

GP workforce

Overall, the plans aim to 'ensure the required yield of 9.8% average member contribution is met while protecting the affordability of the scheme for the whole NHS workforce'.

Andrew Pow, board member of the Association of Independent Specialist Medical Accountants (Aisma), and healthcare partner at Mazars, said: 'The proposed changes to contributions will mean good news for some, but for others there may be unwelcome consequences.

'Under the proposals, the basis on which contributions are calculated will change to actual pensionable pay, instead of a member’s notional whole-time equivalent pay. This will favour some part-time GPs, or GPs who do not work a full year, as their pension contribution tier will no longer be based on the whole-time equivalent income for the year.

'The proposed changes to the pension contribution tier rates mean that all GPs earning above £54,764 will be on a 12.5% tier by 1 April 2023. Currently, many are on a 13.5% or 14.5% tier so they will see a reduced contribution.

'However, there are some lower tiers where the percentage rate will go up and some part-time GPs and GP staff could end up paying more. Pay rises may need to be carefully managed to avoid people going up a pension tier but ending up with lower take home pay.

'At a time when national insurance (NI) is also rising 1.25% for everyone, this could have a significant impact on lower paid staff. Any pay rises could be wiped out entirely by increased pension contributions and the rise in NI.

'There will be complications for GPs with multiple jobs, since it looks like pay from all jobs will need to be aggregated to work out the correct tier. This will be hard to manage in practical terms for busy practice managers.'

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