Plans unveiled to hike employer contributions to NHS pension – at no extra cost to practices

The level of employer contributions paid to staff members’ NHS pension pots could rise from April 2024 in England and Wales, under new plans.

But GP practices won’t be out of pocket –  the extra money for the increase would be centrally funded, the Government’s latest proposed reforms to the  NHS Pension scheme have said.  

A consultation paper published last week recommends that employer contributions be hiked up from 20.6% to 23.7%, effective from 1 April next year, after a valuation showed this was needed in order to ‘meet current and projected scheme liabilities’.

However, practices would receive financial help with those contributions – as they do now.

Currently, employers are responsible for a contribution of 14.3%, with the outstanding (6.3%) funded centrally by NHS England or the Department for Health and Social Care.

This arrangement introduced in 2019 would continue, said the consultation document, with central funds also covering the additional 3.1 percentage point rise, and employers still only paying a contribution of 14.3%.

What’s not yet clear is how long that extra Government support would run for.

 ‘This funding commitment and the central funding arrangement that has operated since its introduction on 1 April 2019, extends to budgets agreed in the Spending Review 2021 and will be reviewed as part of the next spending review,’ the paper said.

Madeleine Dowling, technical team lead at Wesleyan Financial Services said timescales around this funding are uncertain and that ‘we wait to see how long this will continue for’.

The latest pension reforms also put forward changes to the way member contribution tier thresholds are increased annually, with a suggestion they be linked to inflation via the consumer price index rather than be aligned to Agenda for Change (AfC) pay increases.  

Ms Dowling explained: ‘Currently, the contribution tiers increase annually by the increase in the AfC pay scales. However, not everyone in the NHS scheme is on the AfC pay scales and the process requires scheme regulation amendments making it more complex. Linking to AfC was designed to stop members changing contributions bands due to annual pay increases.

‘This was a temporary measure and now this is being reviewed.’

She added: ‘The proposal to increase the bands by the Consumer Price index will align the NHS pension scheme with other index linked public sector schemes, so should simplify its administration and make it easier for members to understand.’

Under the proposed reforms, is also a move to ‘level the playing field’ between part-time and full-time workers by allowing any overtime worked by part-time staff to be pensionable.

Although this was permitted in the older NHS pension scheme, it’s not allowed in the 2015 scheme. Reintroducing that flexibility would mean staff who work part-time can pension overtime worked up to a limit of 37.5 hours per week.

Any overtime worked above 37.5 hours per week, for both part-time and full-time staff, will remain non-pensionable.

‘It’s a move to level the playing field and will encourage more part-time workers to work extra hours at a time when the NHS is under resourced,’ said Ms Dowling.

Meanwhile, the consultation paper also details ‘phase two’ of the changes to the member contribution structure (see box below). Although these adjustments are in line with a previous consultation and not a surprise, they become effective in April 2024, which is ‘later than we expected’, said Ms Dowling.

The reforms to the tiers and amounts that individuals pay into their pension have ultimately led to a ‘flattening’ of the contribution structure. These have implemented to minimise people opting out, prevent ‘cliff edges’ and ensure the scheme remained sustainable and ‘valuable’.

Phase one of the changes were made in October 2022.

This second phase ‘will conclude the review of member contributions and complete the move to the new tiers and rates’, said the consultation paper.

This pension reform consultation closes at 11.59pm on 7 January 2024, and comments are invited via an online survey.