Practices face £50,000 pension cost hike under plan to raise employer contribution to 20.6%

GP practices could face a five-figure hike in pension costs under plans to increase the employer contribution rate for the NHS pension scheme from 14.38% to 20.6% from April.

GPs face extra pension costs (Photo: iStock.com/stocknshares)
GPs face extra pension costs (Photo: iStock.com/stocknshares)

Plans set out in a government consultation on the NHS pension scheme this week reveal that 'draft amendments are proposed to increase the employer contribution rate from 14.38% to 20.6% from 1 April 2019'.

Specialist accountants told GPonline that the increase would trigger a £50,000 rise in costs for an average GP practice once additional contributions for GPs and staff were taken into account.

The sharp hike in employer contributions come as a further blow to GP funding prospects after the government confirmed earlier this year that the state-backed indemnity deal due to take effect in April would be paid for from 'existing resources allocated for general practice'.

Workforce implications

Dr Nigel Watson - the GP leading a government-commissioned review to revitalise the GP partnership model - warned that if the changes translated into a 'massive pay cut' for GPs, the consequences for the workforce and partnerships were 'inevitable'. He warned that GPs urgently needed more certainty over their future - and that the pension proposals risked undermining that.

Andrew Pow, a board member of the Association of Independent Specialist Medical Accountants (AISMA) said that the rise in employer contributions would translate into extra costs of £4,665 for a GP with pensionable earnings of £75,000, £6,220 for a GP earning £100,000 and £7,775 on earnings of £125,000 - with costs for practice staff on top.

'This will have a severe impact on practice finances unless additional funding is available,' he warned. 'To make it even worse, individual higher earning GPs in the 2015 pension scheme could also see an increase in their annual allowance tax charge.'

Mr Pow told GPonline that for an average-sized GP practice with 8,500 patients, extra costs for GPs and staff combined were likely to be around £50,000.

NHS long-term plan

Prime minister Theresa May announced in June that in addition to a £20.5bn increase in funding by 2023/24 under the government's long-term NHS plan - likely to be unveiled early next year - the government would 'also provide an extra £1.25bn a year to cover a specific pension pressure'.

However, Mr Pow warned 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. 'If the funding doesn't come through, general practice could be in for a hit,' he said.

'It looks like what was announced earlier this year won't be enough. At the moment a lot of practices are really struggling just to carry on as they are with the huge increase in patient demand, and with no additional resource for years into general practice.

'Another layer of cost added in will be hugely problematic - a lot of practices are on the edge.'

GP income

Dr Watson said: 'If you are having to pay significantly more in terms of contributions that will have an impact. This was not taken into account by the Doctors and Dentists Review Body (DDRB) earlier this year or in negotiations.'

The DDRB recommended a 4% increase in GP pay for 2018/19, but the government announced earlier this year that it had awarded a rise of just 2%.

Dr Watson said that it was important 'not to jump to conclusions', pointing out that GP funding included an element for expenses, which was in part for indemnity and pensions. 'If those costs are going to change,' he said, 'the funding coming into general practice needs to change.

'Clearly if any of these initiatives mean that people will take a massive pay cut, the consequences of that are inevitable.'

Dr Watson has called through the partnership review for partnership roles to be incentivised financially over locum roles. He added that the pension proposals 'absolutely could impact on partnerships'.

'If the result is that a partner is going to take less money home and employer contributions make it more attractive to become a locum or salaried, that is not going to revitalise the partnership model,' he said.

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