The government has introduced an employer charge resulting from member pay rises, which are over a specified amount, occurring in the three years prior to retirement or a transfer out.
The new charge will apply in cases where a member has a pay increase which is over a specific amount, the consumer price index (CPI) + 4.5 per cent. This charge is applicable to the 1995 final salary section of the NHS Pension Scheme. This could potentially have a financial impact for your organisation and the arrangements are summarised below.
Features of the employer charge:
- An over-cap (CPI + 4.5 per cent) pay increase during a member’s final three years of service will be considered for an employer charge from 1 April 2014.
- The Department of Health and Social Care (DHSC) has considered the impact of final salary schemes but they are not exempt from this provision.
- Clinical excellence awards (CEA) are not exempt from the provision, however a charge resulting from a National CEA will be payable by the funding body responsible for the award.
- Charges resulting from a local CEA will be payable by the local employer.
- Excessive pay increases resulting from a salary sacrifice arrangement taken out before 1 April 2014.
- Normal moves between genuinely different employers and to a higher rate of pay.
- Transfers to the scheme in England and Wales from another health service scheme (for example Scotland or Northern Ireland).
Impact on employers
NHS Employers supports the implementation of powers to ensure that the NHS Pension Scheme remains fair for all members. However, in our response to the consultation, we raised concerns with regards to the level of the proposed cap (CPI + 4.5 per cent) and with regards to situations where pensionable pay increases are outside of the employers control.
It is important that employers consider the potential financial impact for their organisation. The NHS Business Services Authority (BSA) will identify each instance of pensionable pay increase in excess of the allowable amount, calculate the employing authority charge and collect payment of that charge. An invoice will be sent to the employer where a charge is applicable after the member’s award has been processed. There is an employer charge factsheet available which includes examples of where a charge may apply.
Department of Health and Social Care view
In the government response to the consultation, the DHSC noted that they had considered the concerns raised, however they felt satisfied that the numbers of members and the employers affected would be relatively small and that the arrangements implemented will be both fair and proportionate.
2015 NHS Pension Scheme
The move to the new 2015 Career Average Revalued Earnings (CARE) scheme removes the opportunity for excessive or disproportionate benefits to be generated. However, some members will retain their existing pension arrangements due to transition and protection arrangements and therefore this provision will continue to apply. It will also apply to those members who retain the Final Salary Link for their 1995 Section benefits.
To read more about the proposed cap please read the government response to the consultation.