Procurement and alternative pension providers

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07 / 8 / 2015 Midnight

The NHS Pension Scheme (NHSPS) is a qualifying scheme and all employees have a contractual entitlement to join the NHSPS regardless of age or earnings. The employer only has a duty to automatically enrol those workers that are not contributing to NHSPS but meet the criteria for automatic enrolment. Some workers qualifying for automatic enrolment may be restricted by scheme rules from making contributions to NHSPS. These workers will need to be automatically enrolled into an alternative scheme.

Restrictions to NHSPS membership

There are a small number of staff who are not entitled to join the NHSPS for example:

  • those who are already in receipt of a NHS pension
  • those who work full time at another trust
  • workers who are absent from work due to sickness, maternity leave, etc when the statutory duty to automatically enrol applies.

An NHS employer must check each individual NHS employee against the eligibility criteria for joining the NHSPS. It is important to note that the criteria to join the NHSPS have not changed because of the automatic-enrolment duties. Further information about eligibility can be found on NHS Pensions website.

The new employee joiner questionnaire available from NHS Pensions helps your organisation to capture details from new employees regarding their current status within the NHSPS. This has been updated to include questions to establish eligibility for automatic enrolment.

Procurement rules

The NHSPS is a qualifying pension scheme, however each employer will also need to choose an alternative scheme for those employees who are excluded from actively contributing to the NHSPS. The legal obligation to select an alternative scheme rests with each local NHS employer. 

The Government Actuary’s Department (GAD) estimates that 10 per cent of retirees from NHS employment are re-employed each year and excluded from NHSPS. This is likely to be the largest group of employees with restricted membership to NHSPS and therefore requiring access to an alternative scheme.

Procurement costs for financial products are based on charges and commission and do not include the employer contribution costs. National Employment Savings Trust (NEST) does not charge commission as the charges come out of the member's pot and no separate employer charges are levied by NEST.

The majority of those requiring an alternative qualifying pension scheme (AQPS) will be re-employed pensioners or those with over 45 years service within NHSPS.

Employers may have some workers that meet the automatic enrolment criteria but have fluctuating earnings. In such circumstances it may be that the workers do not reach the earnings trigger and no employer contributions would be required. It is difficult, therefore, to procure for these groups.

It is unlikely that you will breach the procurement rules by choosing to use NEST, particularly as you do not need to enter into a contract, however employers will need to make their own decision based on an analysis of their own workforce (age, earning and workers status) and in accordance with their own procurement rules.

Equality impact assessment

DWP produce an annual impact assessment as the policy owners of automatic enrolment and the associated regulations.

National Employment Savings Trust 

The National Employment Savings Trust (NEST) has been set up specifically to help employers to comply with automatic enrolment duties. NEST Corporation is the trustee body that has overall responsibility for running NEST, it's a non-departmental public body that operates at arm's length from government and is accountable to Parliament through the Department of Work and Pensions (DWP).

NEST levies a contribution charge of 1.8 per cent and an annual management charge of 0.3 per cent which is paid for from the employee contributions. There are no separate employer charges levied by NEST and you do not have to enter into a contract to utilise NEST qualifying pension schemes.

The maximum contribution allowed under NEST rules is currently £4,400 per annum.

The charges come out of the member's pot as follows:

Example of NEST Charges  Example 1  Example 2
Total contribution £200

£1000

1.8% charge £3.60  £18
Potential at year 10 £2000 £10,000
Annual Management Charge (AMC) of 0.3% £6.00 £30
Charge + AMC year 10  £9.60 £48

The two examples above assume that the same contribution has been paid into the pot each year and ignores investment returns etc. The total charges over the ten year period are broadly equivalent to 0.48 per cent per annum. NEST has not been through a national procurement exercise, it has however been set up by Government to help employers comply with the automatic enrolment rules.

For further information on NEST please see their website.

Standard Life and The Prudential

Those NHS employers in England and Wales that currently use Standard Life as their Additional Voluntary Contribution (AVC) or stakeholder arrangements will be able to appoint Standard Life as their AQPS provider.  Unfortunately employers that do not currently use Standard Life will need to look at alternative solutions.

If you already have a stakeholder arrangement with Standard Life they will convert your current arrangement so you can continue to use the same scheme. If you have an AVC scheme only, then Standard Life will set up an AQPS section in the stakeholder arrangements that you can use for AE purposes.

The AE process must be completed using the Standard Life on-line portal with the upload template supplied. Standard Life will not accept any application forms or paper schedules for employees that are being auto enrolled. Full details of the upload process are available on the Standard Life website.

The Prudential have confirmed that they will not be offering an automatic enrolment AQPS.

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