Securing your finances for the future has always been a minefield. Lately, it’s got even more confusing as employees can fall under different pension schemes. But what do you need to know about your scheme and your staff’s?
Forget the GPs; it’s the practice managers who are expected to be the all-knowing super brains of the GP practice environment.
Practice managers are expected to have a wealth of knowledge across several areas: human resources, IT, finance, regulatory issues, succession planning, new contract negotiations, company incorporation, federation and super practice transformation, not to mention the day to day running of the practice. They also need to be keenly aware of complications arising from employees being opted into the NHS Pension Scheme (NHSPS) as they are already included in the global lump sum for the entire practice and there is no new money available for this figure. The NHSPS is also opting back into the state pension scheme from April 2016.
At the moment people in the NHSPS are contracted out and pay reduced rate national insurance payments, as does the practice. If you look at the practice payroll then people are either contracted in or out if they are in the NHSPS. From April 2016 everyone will be contracted back in so both employers and employees’ payments will go up. By a conservative estimate the wage bill will go up by about 2%. To see the effect on your practice, run the payroll assuming everyone is contracted in. In addition to this from April 2016 your staff may feel they’ve had a pay cut as higher national insurance (NI) payments kick in and reduce their take home pay.
Practice managers are expected to have an encyclopaedic knowledge of the NHSPS including the complex issues around automatic enrolment and all the legal implications that require keeping copious quantities of payroll data and documentation on a rolling monthly basis.
It is recommended to all practice managers and practices presented with these issues to get the right technology. It shouldn’t require the retention of an expensive consultancy to get the right information, which is freely available. The process is relatively straightforward, engage with your payroll software provider and see what automatic enrolment package they have to offer.
Automatic enrolment ensures that every employer automatically enrols all ‘eligible jobholders’ into a Qualifying Workplace Pension Scheme (QWPS) but self-employed GPs will not have to be automatically enrolled as it only applies to employees.
Every GP practice will have a staging date when the practice must begin assessing their employees and automatically enrolling eligible staff. GP partners in particular need to be aware of their legal obligations as practices could be subject to substantial penalties that range from significant fines to imprisonment if you are deemed to fall short. The regulator is bound to make examples of those who fail to comply so do not get caught out, plan ahead.
It is recommended you log onto The Pensions Regulator website and check your specific staging date by typing in your employers PAYE (pay-as-you-earn) reference.
Automatic enrolment legislation will mean changes for every practice; when the staging date is reached each practice must begin assessing their workforce at every payroll run thereafter and must automatically enrol any ‘eligible jobholders’ into a QWPS on an ongoing basis. The NHSPS is the QWPS of default for all staff if eligible. All employees who are members of the NHSPS are already in a QWPS and can be discounted.
If the practice has eligible jobholders who are not members of the NHSPS already and who are not eligible to join it, they must be automatically enrolled into an alternative scheme that meets QWPS standards. Even if they say they don’t want to join you must enrol them and then they can opt out.
Each practice must have an alternative scheme available to the NHSPS in order to be able to fulfil their responsibilities under the new legislation. An example is the National Employment Saving Trust (NEST). (Note employer/employee contribution levels for the alternative scheme do not have to be in line with the NHS Scheme.)
Employees who have enhanced or fixed protection on their pension provision will lose it if they are automatically enrolled and do not opt out within one month, so communication and planning is key.
Each practice has to communicate the implications of the new legislation to staff. Each employee must receive communication after the practice’s staging date to let them know how the new rules have affected them. The practice must also go through the declaration of compliance on the pensions regulator website (see Resources) within five months either side of their staging date.
The pension schemes
The normal retirement date still remains age 60 and all benefits accrued within that scheme can still be taken at age 60 without penalty. The pension is based upon the best salary in the three years before you take your benefits. The pension is 1/80th of final salary and a lump sum of 3/80th for each year of service.
The normal retirement date is age 65 and the pension is still based upon your best earnings in the last three years, but the pension accrual is 1/60th for each year’s service and if you want a lump sum then you give up part of your pension.
The normal retirement date is now linked to state pension age so for many people that will be age 67 or higher. The pension is now 1/54th of your average career earnings so it is no longer a true final salary scheme. The lump sum is provided by giving up some of your pension.
What scheme are you in?
If you joined the NHS before 1 April 2008 then you have benefits in the 1995 pension scheme.
If you joined between the 1 April 2008 and the 31 March 2015 then you will have benefits in the 2008 pension scheme.
If you joined after the 01 April 2015 then all your benefits are under the 2015 pensions scheme.
If you were in the 1995 scheme or the 2008 scheme and you were born before the 1 April 1962 you retain membership of that scheme and you do not join the 2015 scheme.
If you were born between the 1 April 1962 and the 31 July 1965 you will be transitioned into the 2015 scheme.
If you were born after this then you joined the new scheme on the 1 April 2015. The membership that you had under the 1995 or 2008 scheme is still payable at age 60 or 65 and is still based upon your final salary.
It is only future service that is in the new scheme.
Special class status
If you have this then you still retain age 55 as your normal retirement date and a different set of transitional rules apply. If you retire at age 55 and return to work then you can be subject to the abatement rules. This means that your pension plus the new NHS work can’t be more than your pre-retirement income otherwise you lose some of your pension.
Don’t forget the very valuable death in service benefits, dependants pensions and children’s pensions as well as the ill health early retirement pension. These are incredibly valuable.
By way of clarification here are some pointers focused on GPs for practice managers to be aware of.
1995/2008 NHS Pension scheme for GPs
Irrespective of whether we are talking about a self-employed partner or a salaried GP, both are in the same section of the pension scheme.
The pension is based upon career average earnings, which are dynamised in line with inflation plus 1.5% each year so they keep their value in real terms. The standard pension is 1.4% of your pot and the lump sum is three times.
GPs should get a pension estimate with a complete service history and the dynamising sheet to check the earnings are correct. If they are paying into added years then this is also needed.
Then work out where GPs and other qualifying staff are with regards to the Lifetime Allowance (LTA) and the Annual Allowance (AA).
This is the maximum amount of money that you can have in your fund before the Government starts applying penal tax charges. The limit was £1.8 million and it is going down to £1 million in April. Under the 1995 scheme if the accrued pension is greater than £43,478 then it will be affected. The effective tax charge is 55% if you break the limit. If you were above £1.25 million as at the 6 April 2014 then you can protect yourself by applying for Individual Protection 2014 up to a maximum value of £1.5 million.
You have until the 5 April 2017 to apply. If you were below £1.25 million then, but you are currently above £1 million, then you can apply for Individual Protection 2016.
Annual allowance (AA)
This is the amount of money you are allowed to save towards your pension each year before the government penalise you for saving too much.
As most GPs are self-employed and you don’t know their earnings, then how do they know where they are. The AA is currently £40,000 and now for some good news and not so good news. There have been changes to the way the AA has been calculated, and for most GPs for the tax year 2015/16 they will not have a significant AA problem. This all changes however for the tax year 2016/17 and for what the government deem as high earners they are going to restrict tax relief.
A high earner in this context is someone who has assessable income of more than £150,000. If there is a threshold income of less than £100,000 then keep the £40,000 AA limit but others could see theirs cut to £10,000.
Before taking any decisions seek suitably qualified advice from specialist medical independent advisors fully authorised by the Financial Conduct Authority. l
Kevin Walker, director of wealth managers Blackett Walker Ltd authorised and regulated by the Financial Conduct Authority (FCA). He is also a director of sister company medical specialist accountants BW Medical Accountants Ltd.
The pension regulator – www.thepensionsregulator.gov.uk.