The Department of Health and Social Care (DHSC) is currently consulting on changes to the member contribution structure for the NHS Pension Scheme in England and Wales from 1 April 2022.
The NHS Pension Scheme is made up of the 1995 and 2008 Sections, which are final salary schemes, and the 2015 Scheme, which is a career average (CARE) scheme. All active members of the NHS Pension Scheme will be in the 2015 Scheme from 1 April 2022 as part of the McCloud remedy, and the final salary schemes will be closed for future accrual.
Member contributions to the NHS Pension Scheme have been reviewed by the government as part of this change. Certain features of the current member contribution structure have been identified as no longer being appropriate when all members will be building up benefits in a CARE scheme.
DHSC is therefore consulting on changes to the design of the member contribution structure from 1 April 2022, which will impact on contribution rates and therefore take-home pay for many members of staff. The employer contribution rate will not be affected by these changes.
This web page summarises the following proposals that are set out in the consultation:
- Changes to the design features of the member contribution structure
- How the new structure would be phased in
- The proposed new structure, with information to show the impact of the changes on scheme members.
NHS Employers will be responding to the consultation on behalf of employers, and we would like to hear your views to help inform our response. Details of how employers can provide feedback on the proposals are provided at the end of this page.
The consultation can be read in full on the GOV.UK website and will close on 7 January 2022.
Changes to the design features of the member contribution structure
The consultation proposes making three changes to the design of the member contribution structure.
1. Contribution rates would be based on a member's actual pensionable pay
A member’s contribution rate is currently determined based on their notional whole time equivalent (WTE) pensionable pay. It is proposed that this is changed to using actual pensionable pay.
In the 2015 CARE Scheme, the build up of pension is based on actual earnings in each scheme year of a member’s career, rather than being linked to their WTE final salary. Basing contribution rates on actual pensionable pay would therefore mean that contributions for members that work part-time would more accurately reflect the amount of pension they are building up in the scheme. Many part-time employees would see a reduction in their pension contribution as a result of this change.
It is proposed that the previous year’s pensionable earnings are used to determine the member’s rate for the current scheme year. The consultation provides further detail on some of the practicalities of implementing this change for employers to consider, such as determining rates for members with multiple part-time employments, those that join the scheme part way through the year and those that change their contracted hours part way through the year.
2. The steepness of the tiering within the contribution structure would be reduced
Members of the NHS Pension Scheme are required to collectively contribute an average of 9.8 per cent of pensionable pay to the scheme. In the current tiered contribution structure, higher earners pay proportionally more in contributions (up to 14.5 per cent) than lower earners, to ensure that the scheme is accessible and affordable for all members of the NHS workforce.
DHSC is proposing to retain a tiered contribution structure, but to reduce the number of tiers from seven to six, with the top rate for the highest earners also reducing from 14.5 per cent to 12.5 per cent. This would reduce the steepness of the tiering, creating a flatter structure.
The high level of subsidy that higher earners currently provide to lower earners is not considered to be appropriate in a CARE scheme, where all members get the same proportional benefits, unlike in a final salary scheme. The consultation sets out an intention that the contribution structure will gradually flatten further over time, moving towards more members paying closer to 9.8 per cent of their pensionable pay in contributions to the scheme.
3. Tier boundaries would be increased each year in line with the Agenda for Change (AfC) pay award
The tier boundaries in the current contribution structure have been frozen since 2015. This means that nationally agreed pay awards can sometimes lead to members being moved up to a higher contribution tier. If the increase in pension contribution is higher than the pay uplift, this would lead to a net reduction in the individual’s take-home pay. Employers have previously identified this as an issue within the current structure.
It is proposed that the tier boundaries are increased each year in line with the Agenda for Change pay award, which is the pay award that applies to the highest number of NHS Pension Scheme members. This would reduce the likelihood of a member moving into a higher contribution tier as a direct result of a national pay award.
How the new structure would be phased in
The consultation outlines the importance of making some changes on 1 April 2022, such as basing contribution rates on actual pay, to align with all active members being in the 2015 CARE Scheme from that date.
However, it is proposed that the new contribution rates are phased in over two years, with the final structure being in place from 1 April 2023, to help minimise impacts on take-home pay for those that will be paying higher pension contributions.
The proposed new structure
The above changes to the design features of the contribution structure involve a reduction to contribution rates for some scheme members, such as part-time employees and higher earners. If these changes were implemented based on the current structure, the average contributions collected from members would be below the 9.8 per cent of pensionable pay that is required.
Therefore, contribution rates across the structure have needed to be adjusted to ensure that the new structure accommodates the changes and still achieves an average contribution rate of 9.8 per cent.
The below table sets out the current rates and the proposed new rates for members according to their pensionable earnings. As the new rates are proposed to be phased in over two years, figures are given from 1 April 2022 and from 1 April 2023. The final column shows the percentage difference between the current rate and the final rate (from 1 April 2023) for members that work full time.
|Pensionable earnings||Current rate (WTE pay)||Rate from 1 April 2022 (actual pay)||Rate from 1 April 2023 (actual pay)||Overall change to contribution rate for members working full-time*|
|Up to £13,231||5.0%||5.1%||5.2%||+ 0.2%|
|£13,232 to £15,431||5.0%||5.7%||6.5%||+ 1.5%|
|£15,432 to £21,478||5.6%||6.1%||6.5%||+ 0.9%|
|£21,479 to £22,548||7.1%||6.8%||6.5%||- 0.6%|
|£22,549 to £26,823||7.1%||7.7%||8.3%||+ 1.2%|
|£26,824 to £27,779||9.3%||8.8%||8.3%||- 1.0%|
|£27,780 to £42,120||9.3%||9.8%||9.8%||+ 0.5%|
|£42,121 to £47,845||9.3%||10.0%||10.7%||+ 1.4%|
|£47,846 to £54,763||12.5%||11.6%||10.7%||- 1.8%|
|£54,764 to £70,630||12.5%||12.5%||12.5%||No change|
|£70,631 to £111,376||13.5%||13.5%||12.5%||- 1.0%|
|£111,377 and above||14.5%||13.5%||12.5%||-2.0%|
*The figures in this final column will not necessarily apply to members that work less than full time, as rates from 1 April 2022 would be based on their actual pay and not notional WTE. Contribution rates are expected to decrease for many part-time employees across all tiers.
DHSC has provided examples to show the impact on members from across the NHS workforce, once the new rates have been phased in from 1 April 2023:
- A healthcare assistant working full-time earning £19,918 (top of AfC band 2) would pay an additional £15 a month after tax relief, but would still pay £46 a month less than if on the average 9.8 per cent contribution rate. The same healthcare assistant working 60 per cent of full-time hours would pay £2 less than they currently do, and £48 per month less than if on the 9.8 per cent rate.
- A nurse working full-time earning £31,534 (top of AfC band 5) and therefore paying the average 9.8 per cent contribution would pay an additional £19 a month after tax relief. The same nurse working 60 per cent of full-time hours would pay £32 a month less than they currently do, and £43 per month less than if on the 9.8 per cent rate.
- A consultant earning £114,003 would pay £85 less a month after tax relief, but would still be paying £160 a month more than if on the average 9.8 per cent rate. The same consultant working 60 per cent of full-time would pay £51 a month less than they currently do, but still £96 more than if on the average 9.8 per cent rate.
Have your say on the proposals
NHS Employers will be responding to this consultation on behalf of employers, and we would like to hear your views to help inform our response.
Employers can provide feedback on the proposed changes in general, or on specific aspects of the proposals by emailing firstname.lastname@example.org. If you would like to be involved in more detailed conversations about the proposals, please email us and we will be in touch.
We will be engaging with our employer networks throughout the consultation period, where there will also be an opportunity to provide feedback to some more targeted questions to help inform our response.