NHS Pension Scheme: hope in sight for workforce issues?

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NHS Pension Scheme: hope in sight for workforce issues?

Published 7 August 2019

The government has just announced new proposals to help senior clinicians take on additional work without breaching the annual allowance tax threshold and facing tax charges.

What we know so far:

  1. A new Department of Health and Social Care consultation will replace the previous one commenced a couple of weeks ago on the so called 50:50 proposal.

  2. The new proposals to be consulted on appear to include the following:

    i) from April 2020, senior clinicians will be able to individually choose their level of pension accrual (build up) in the NHS  Pension Scheme  (in 10 per cent steps) at the start of each year, and pay proportionately reduced contributions. eg 30% contributions for a 30% accrual rate.
    ii) the idea behind this is that senior clinicians will be able to set the exact level of their pension accrual at the start of each year depending on their financial situation. The aim is to give them room to take on additional work without breaching their annual allowance and facing tax charges.
    iii) employers would then have the option to recycle unused monthly employer contributions back into the clinician’s salary.
    iv) alongside these proposals for greater flexibility, HM Treasury will review how the tapered annual allowance supports the delivery of public services such as the NHS, and continue to engage with the NHS, the British Medical Association (BMA) and other stakeholders as part of this process.
    v)  the proposals do not expressly deal with Lifetime Allowance tax threshold issues, but may help some individuals from breaching this limit too.

  3. The proposals aim to follow the commitment made in the NHS People Plan to deliver a fairer and more flexible approach to the NHS Pension Scheme for senior clinicians.

  4. A number of questions remain to be answered, including:
  • Who exactly will the proposed new flexibility be available to? If senior clinicians (presumably consultants and General Practitioners) can take advantage of the new flexibility, will any other individuals who are members of the NHS Pension Scheme and who have reached or are near the annual allowance tax threshold also be able to? There is a risk of the new proposals being deemed discriminatory if they only help a narrow group of staff;
  • How will the proposals work in practice, given that the current problems include affected staff not being able to assess in advance whether particular additional work/roles will take them over the annual allowance tax threshold. Presumably staff setting their own accrual rate in the NHS Pension Scheme at the beginning of each tax year will need to able to accurately estimate their prospective pensionable earnings for the coming year. The assessment of their pensionable pay for the coming year may become complex as individuals will need to take into account the extent to which they believe their employer will “redirect” unused employer contributions (to the NHS Pension Scheme) to them as additional pensionable pay. It is likely that staff will need detailed Financial Advice to work out how to best apply the new flexibility to their own personal circumstances;
  • How will NHS employers exercise their proposed discretion to pay “unused” employer NHS contributions to staff? It’s easy to see that employers may take a variety of different approaches which could lead to a greater variation in remuneration for the same work/roles across the NHS.

Some of these questions may be addressed by the detailed consultation paper which we expect to be published shortly.

If you have any queries regarding this client briefing note please contact Neil Bhan, the partner who heads up our NHS Pensions team, via the contact details below.

Authors

Neil Bhan

Neil Bhan

London - Walbrook

+44 (0) 20 7894 6512

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