The Government will cover the cost of the increased employer contribution rate until 2023/24, the Treasury has confirmed.
In a consultation response to the NHS pension scheme, the Government announced that it will introduce a new contribution rate of 20.6%, in addition to a 0.08% administration charge, for employers from 1 April 2019.
This represents an increase of 6.3 percentage points from the current tax year.
However, the Treasury confirmed to our sister publication Healthcare Leader, where this article was first published, that employers receiving payments from NHS England budgets or from the NHS to deliver NHS services will receive additional funding for pension costs until 2023/24.
This follows the Government’s commitment to cover these costs until 2023/24, which came alongside the announcement of a five-year funding increase of £20.5bn for the NHS – announced by the Prime Ministe last year.
According to the consultation response, employers covered by this deal include:
- GP practices
- Commissioning Support Units
Some non-NHS organisations receiving ‘funding from the NHS for the delivery of NHS services, including independent providers, social enterprises, charities and hospices’ will also be covered.
Many respondents to the public consultation ‘felt the increase was too high and an unaffordable financial burden that will require employers, including GP practices, to review their workforce’.
However, the Treasury told Healthcare Leader that they deemed the increase necessary following the results of a pension revaluation scheme – which takes place every four years and is carried out to make sure that public sector pension schemes are sustainable for the future.
The consultation document said that for 2019/20, the NHS Business Service Authority will only collect 14.38% from employers, with the rest of the contribution being paid directly from the Treasury to the Department of Health and Social Care (DHSC).
However, it added that ‘arrangements for 2020/21 will be confirmed in due course, with the expectation that the scheme will return to ‘business as usual’ arrangements in 2020/21 both in terms of contribution collections and funding flows’.
According to the Association of Independent Specialist Medical Accountants vice chairman Deborah Wood, this means that from 2020/21 the responsibility to pay for the increase will fall on employers directly.
She said: ‘Despite the widely-held concerns raised during the consultation about the financial impact of the 6.3% increase in employer pension contributions, the increased rate of 20.6%, plus a 0.08% administration charge, will be implemented from 1 April 2019.
‘For 2019/20 a transitional approach is being applied so that 6.3% will be paid directly by NHS England and the DHSC to the pension scheme. Therefore, from a cashflow point of view, there will be no immediate effect on the majority of NHS employers, including hospitals, trusts and GP practices.
Ms Wood said that in 2020/21, it will be down to employers to foot the full 20.68% but they should have received extra money to cover the cost. However, she added, the tax impact this will have on employees needs to be understood.
She said: ‘If HMRC takes into account the additional 6.3% when determining exposure to the pension annual allowance and subsequent tax charges, then an increasing number of GPs could find themselves affected by annual allowance tax charges on a regular basis.
‘It will be essential for finance managers and GP practices to see a clear correlation in their funding allocations for the additional 6.3% being added to their budgets out of which they will then have to make the additional employer contributions on a regular monthly basis from April 2020 onwards.’
Management in Practice prevoiusly reported that practices could be required to pay for increased employer contributions from 2020/21, ahead of today’s confirmation from the Treasury that employers will have their costs covered until 2023/24.
Additional reporting by Anviksha Patel