Changes to NHS Pension Scheme member contributions - webinar recording

The changes to member contributions will be effective from 1 October 2022 and will not be backdated. The new contribution structure will be introduced in two phases, the first phase from 1 October 2022 and the second phase from 2023.  The exact date for phase two is yet to be confirmed but will be communicated once known. 

The Department of Health and Social Care (DHSC) intends to assess contributions based on aggregated earnings for members with multiple part time employments. Due to its complexity, particularly where staff hold multiple employments with different employers, more time is required for further consultation and system development. Therefore, this is not expected to happen before April 2024 at the earliest.

NHS Pensions will automatically issue posted letters to all members over a phased period of time using the address on the member’s record.

Letters will start to be issued to active members from the 22 August 2022 and will continue through September. Deferred members will receive their letters later through October and November 2022.

It is important to encourage all members to make sure their personal details are up to date to ensure they receive key member communications. Details on how to register a change of address can be found on the NHS Pensions member hub website.

Members can also read more about the latest NHS Pension Scheme updates and developments, including changes to member contribution rates, on the NHS Pensions member hub web page.

To assist NHS organisations to implement the changes to member contributions from 1 October 2022, an employer briefing pack will be distributed via the NHS Pensions employer newsletter distribution list. The pack is expected to be circulated shortly.   

It is important that contact details for the newsletter are kept up to date. NHS organisations can check and update their details via the NHS Pensions employer hub website.

A copy of the briefing pack will also be available via the NHS Pensions website.

The amount members pay into the NHS Pension Scheme may change for some from 1 October 2022. Some scheme members may pay a higher rate and will be required to contribute more to the scheme than they currently do. Others, including high earners and part time staff, may have a lower rate and will contribute less. Our member contributions poster sets out the changes to contribution rates for scheme members with different levels of pensionable earnings.

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 than lower earners, to ensure that the scheme is accessible and affordable for all members.

The high level of subsidy that higher earners currently provide to lower earners is no longer considered to be appropriate in a CARE scheme, where all members get the same proportional benefits, unlike in a final salary scheme. As all active members moved to the 2015 CARE scheme on 1 April 2022, it makes sense to have a contribution structure best suited to a CARE scheme.

In the new structure, the number of tiers will reduce from seven to six, and the top rate for the highest earners will reduce from 14.5 per cent to 12.5 per cent. This change will reduce the steepness of the tiering and create a flatter structure.

The employer contribution rate is 20.6 per cent of pensionable pay and it will remain unchanged until 31 March 2023. Changes to the member contribution structure introduced on 1 October 2022 will not impact employer contributions.

The employer contribution rate is set through a process known as the scheme valuation. A scheme valuation is carried out every four years and it measures the cost of paying pension benefits.

Employers also pay an additional 0.08 per cent of pensionable pay to cover the costs of scheme administration.

The tier boundaries of the new member contribution structure will increase annually in line with the AfC pay award. The payment of the award will trigger a reassessment of pension contribution rates for members of the NHS Pension Scheme.

The timing of the 2022 AfC award payment will determine which member contribution structure should be used. All members will move to the new contribution structure from 1 October 2022. However, if award payments are made in September, scheme members will be reassessed against the current contribution structure. If award payments are made after 1 October, scheme members will be reassessed based on the new contribution structure.

The changes being introduced will not impact the scheme benefits members will receive.

A member’s contribution rate to the NHS Pension Scheme is not linked to the value of pension benefits they will receive in retirement. Therefore, if a member’s contribution rate is reduced from 1 October 2022, the value of their pension benefits in the NHS Pension Scheme will not change as a result. 

Members may choose to pay additional contributions to increase their pension if they wish. This can be done in many different ways and further information is available on the NHS Pensions member hub.

Many part-time employees will pay a lower contribution rate as a result of the changes being introduced from 1 October 2022.

Employees who work less than full time hours will see a reduction in their contribution rate. This may not affect individuals working condensed full time hours (ie full time over four days) but may affect those working condensed part time hours (ie four days worked over three days).

Employers will need to reassess contributions for members if their circumstances change part way through the year.

Currently, a member’s contribution rate is set using their whole-time equivalent earnings from the previous year and employers are required to reassess the member’s contribution rate if their circumstances change during the year, for example, if the member is promoted or receives an increase in pay. As contributions are currently based on whole-time equivalent earnings, employers are not currently required to reassess the member’s contribution following a change to working hours. However, from 1 October 2022, member contributions will be based on actual pensionable earnings, and so employers will need to start to reassess contributions for members who change their contracted hours. 

Detailed guidance is being prepared by NHS Pensions to explain how these mid-year reassessments will work in practice.

Currently, members with multiple employments are assigned a contribution rate based on their earnings for each post. DHSC is keen to aggregate earnings across multiple employments for the purposes of assessing contribution rates. Aggregating annual rates of pay would mean that a part-time member with multiple roles would build up pension at the same price as a full-time member earning the same overall amount and means that there is no unfair advantage in dividing up a role into multiple part-time roles.

Practically, there will be some difficulties in aggregating earnings for members with multiple employments, particularly where staff hold multiple employments with different employers. DHSC therefore intends to introduce aggregation from 1 April 2024, to allow more time for system development and further consultation on how this would work in practice.

Members may choose to pay additional contributions to increase their pension if they wish. This can be done in many different ways and further information is available on the NHS Pensions member hub.

ESR will provide comprehensive communications to employers ahead of the changes to help with implementation.