On the 28th January the Department of Health and Social Care published their consultation on the proposed amendments to the NHS Pension Scheme.
The full detail can be found here
The proposed amendments include an important and positive step forward in relation to final pay control charges with some new exemptions and key allowances for non-GP Partners such as Practice Manager and Nurse Partners.
Some practices have previously faced six figure bills for final pay controls so this consultation comes as welcome news.
A brief explanation of Final Pay Controls and a Summary of the key proposals are outlined below.
What is a Final Pay Control charge?
To fully understand this charge we need to roll back to why these were introduced from 1 April 2014.
Prior to this date it was possible for an employee to benefit from a much increased pension if their employer increased their pensionable pay in the run up to their retirement. This is because an employee is usually in the officer section of the NHS pension scheme where their 1995 NHS Pension is based upon their years of service multiplied by their best pensionable pay in the last 3 years prior to retirement.
After a review of pensions data in 2012 it was found that some employees pensions had significantly benefitted from higher than expected pay rises prior to retirement. This was an unexpected additional cost for the NHS Pension Scheme. To prevent this from happening or at least reduce the cost to the NHS Pension Scheme, Final Pay Controls were introduced to effectively make the employer pay for the “excessive” increased pension that an employee would benefit from where the employees pensionable pay was increased by more than an allowable amount. This resulted in NHS Business Services Authority raising invoices to GP practices for in some cases, six figure sums! It also caught scenarios it wasn’t designed to catch. For example, non-GP Partners often see fluctuating profits from one year to the next and consequently their pensionable pay can swing up and down from year to year depending upon the profitability of the practice whereas for a member of staff, their salary is usually more predictable!
Final Pay Control charges typically applied where pensionable pay had risen by more than 4.5% plus inflation from one year to the next.
So what are the proposed changes?
The consultation focuses on the following proposed changes which no doubt will be welcome news to many but unfortunately will not avoid all final pay control charges and some areas need further clarification:
- The allowable increase to be changed from 4.5% plus inflation to 7% plus inflation. This would reduce the amount of Final Pay Control charges issued by about 50%
- Extending the list of exemptions to include the following:
- promotional pay increases,
- pay increases following the regrading of a post after a job evaluation process
- all nationally agreed pay awards and
- increases above the allowable amount for non-GP Partners will be ignored if their percentage share of profits does not increase unless for a partner leaving
It is this last point that will be a big relief for many GP practices that have non-GP Partners however it is stressed, this is only in consultation stage and we do not know yet whether any prior allocations of profit are ignored so continue to take professional advice if you have non-GP partners as you may still need to be careful with pensionable profit increases in the run up to retirement of your non-GP partner.
The consultation closes at midnight on 8 April 2021 and unless COVID impacts matters we are expecting to hear further news regarding this around summer time.