The government has concluded that no further changes need to be made to the NHS Pension Scheme (NHSPS) in relation to annual allowance tax concerns raised within the NHS on the basis that the modifications made to the annual allowance taper thresholds last year address the same policy aim. As a result of the changes to the thresholds, all individuals with earnings below £200,000 are no longer in scope of the annual allowance taper. The government stated that this change meant up to 96% of GPs and 98% of consultants would no longer be affected by the taper.
The government is however, currently consulting on changes to the NHSPS to address certain sexual orientation discrimination issues including those which might affect male survivors of deceased female members. NHS Business Services Authority (NHS BSA) will review member records and make the adjustments required (including the payment of arrears) and NHSPS employers and members will not need to do anything. In additional the government is proposing to make certain reforms to the final pay controls provisions, including increasing the allowable amount to CPI + 7%, and extending the permitted exemptions to these provisions.
No annual allowance changes to be made to the NHSPS due to 2020 annual allowance taper threshold increases
The government published last week a response to its September 2019 consultation paper setting out plans to amend the NHSPS to deal with the impact of the annual allowance taper on high-paid clinicians. It announced that it was not proceeding with the proposed amendments which included offering scheme members greater flexibility by allowing them to set their pension accrual and contributions rates at the start of the tax year in increments of 10%, subject to a 10:10 minimum level.
The rationale is that the government last year modified the taper by substantially increasing the applicable thresholds (the threshold income and adjusted income thresholds increased to
£200,000 and £240,000 respectively) and this has resulted in meeting the same policy aim. These increases removed up to 96% of GPs and 98% of consultants from the taper calculation based on their NHS income, and for those individuals with earnings below £200,000, they are now no longer in scope of the taper. The response stated that a limited number of the very highest earners in the NHS, with income in excess of £200,000, will still remain in scope of the annual allowance taper. Although such members may still receive a tapered annual allowance breach, they will have a £90,000 additional headroom before the charge applies and they will be assessed against a higher adjusted income.
The government also stated that it will explore improving the transparency of the current scheme pays mechanism by showing the value of scheme pays deductions against the total value of a member's pension benefits on annual benefit or total reward statements.
Proposals to amend for potential discrimination on grounds of sexual orientation and other amendments including the final pay controls provisions
A new consultation (which closes on 8 April) has also been recently published by the Department of Health & Social Care to amend the NHSPS to deal with the potential discrimination of male survivors of deceased female scheme members who are entitled to receive lower survivor benefits than comparable same-sex survivors. This potential discrimination is a result of the 2019 changes made to the NHSPS to reflect the Walker v Innospec judgment which provided that surviving male and female same-sex spouses and civil partners are to receive benefits equivalent (in the most part) to those received by widows in opposite-sex marriages.
The proposed amendments (which will be backdated to 1 April 2019, when the Walker amendments took effect) are only to the NHSPS Regulations 1995 (the 2008 and 2015 NHSPS Regulations have already equalised benefits) and are designed to equalise the survivor benefits for male survivors of deceased female members with those of female survivors of deceased male members but only where the entitlement to benefits arose on or after 5 December 2005.
As a result of the proposed amendments, it is possible that arrears of survivor benefits may be due to male survivors of deceased female members as well as becoming entitled to an increased survivor pension. Those female members (or their estates) who purchased increased survivor benefits (either by way of additional voluntary contributions or electing for a reduced lump sum on retirement) may also be entitled to a refund. NHS BSA as the NHSPS administrator will review member records and carry out these calculations and make the adjustments required. NHSPS employers and members do not need to do anything. NHS BSA has the necessary authority to make any payments as arrears as necessary prior to the enactment of the proposed amendments.
In addition, the consultation proposes three other changes to the NHSPS, namely:
- removing certain amendments to the 1995 Section Regulations made by the Civil Partnership (Opposite Sex Couples) Regulations 2019 so that opposite-sex civil partners’ pensions will be equalised with those provided for widows (which may also lead to arrears being payable and will be handled in the same way by NHS BSA);
- ensuring that payments and allowances under the New to Partnership Payments Scheme are treated as non-pensionable earnings for both GPs and non-GP providers (with effect from 1 April 2020); and
- reforming the final pay control provisions of the 1995 Section Regulations. Data from the NHS BSA indicated 954 breaches of the final pay control policy in 2019/20 with the average charge being around £35,000. Two changes are proposed:
- increasing the allowable amount to CPI + 7% (an increase from 4.5%); and
- including further exemptions to the final pay control regulations e.g. pay increases in line with certain nationally agreed contracts, increases to pensionable pay as the result of a National Clinical Excellence Award, promotions following open and fair competition, a pay increase due solely to the ending of a salary sacrifice arrangement, and profit share percentage increases for non-GP providers (such as where practice profits overall increase in the final 3 years before a member retires, or another partner retires and this causes the percentage share of profits increase).
