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NHS pensions: Mandated pensions recycling by 2023

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By Ceri Fuller and Hilary Larter

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Published 14 October 2022

Overview

The government has confirmed it will require NHS trusts to offer pensions recycling by 2023. 

The government has confirmed it will require NHS trusts to offer pensions recycling by 2023.

The facts

Thérèse Coffey confirmed when speaking to the House of Commons on 22 September 2022 that this mandate is part of the Government’s plans to retain clinicians or encourage their return to help the “national endeavour”.  

Pensions recycling is where an employer passes on unused employer’s pension contributions to an employee who has opted out of the employer’s pension scheme.  While some trusts already offer pensions recycling in certain situations, this mandate is a marked change.  We anticipate guidance from NHS England in due course.

What does this mean for employers?

The government’s proposal is aimed at those who are nearing or have reached the annual tax-free and/or lifetime allowance for pension contributions.  Given that individuals caught by these rules tend to be those in senior positions, there is a risk that any such schemes may be indirectly discriminatory (based on age, sex and/or race) and could cause a negative impact on the gender pay gap and pay equality.  Therefore, consideration should be given to how any pensions recycling scheme is framed and applied in practice.  Trusts will also need to be careful that anything they do won’t be seen as an inducement to its employees to opt-out of the NHS Pension Scheme.

This proposal may be optically difficult for trusts to implement.  Its aim is to alleviate a tax burden on higher earners, at a time when the country is experiencing a cost of living crisis and there may be lower paid staff who may also wish to engage in some form of pensions recycling for affordability reasons. 

If any trusts would like more information or advice on drafting pensions recycling policies, please contact Udara Ranasinghe, Nick Chronias, Joanna Pennick or your usual DAC Beachcroft contact.

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