The Department of Health and Social Care (DHSC) recently consulted on proposed changes to the NHS Pension Scheme. Proposals included changes to the member contribution structure to ensure that the scheme remains sustainable and a valuable part of the reward package for members. The consultation introduced other miscellaneous amendments, including the new employer contribution rate from April 2024.
Our response to the consultation
We have gathered the views of employers and responded to the consultation on their behalf. Thank you to all who contacted us to provide information and examples of your experiences to inform our feedback. Our response highlighted the following key points:
- Employers support the proposals’ aims to ensure the NHS Pension Scheme is sustainable, provides fairness for members and is a valuable tool for attraction, motivation and retention of the NHS workforce.
- Employers feel a consistent and considered approach to member communications will be required to ensure that individuals are aware of the rationale for changes to member contributions.
- Employers consider the proposed changes to member contributions may have an impact on lower paid members and this should be closely monitored using regular opt out data. Employers are keen to ensure that lower paid members of staff still find the scheme to be a valuable vehicle for retirement savings.
- While employers' welcome confirmation of central funding for the employer contribution rate increase, they would also welcome clarity on long-term funding.
We will update employers on next steps once the consultation outcome has been published by Department of Health and Social Care (DHSC).
Summary of DHSC proposals
The proposed changes to the member contribution structure have been underpinned by the following principles:
- protect the lower paid
- minimise the risk of opt-outs from the scheme across the whole membership
- ensure that the scheme remains sustainable, continued to be a valuable part of the reward package and, is affordable for all members.
The proposed changes include the following areas:
- Fewer tiers in the member contribution structure.
- Removal of the bottom tier at a future date in line with HM Treasury directly reimbursing individuals who earn under the personal income tax allowance and contribute to the NHS Pension Scheme. The planned tiers are outlined below.
- Future-proofing the contribution structure, with tier boundaries increasing annually in line with an indexing calculation such as the Agenda for Change pay award or the Consumer Price Index (CPI). DHSC’s preferred method is using CPI from the prior September to increase tiers, allowing time for relevant legislation and avoiding detriment to members take-home pay. A process of reviewing the process on a four-yearly cycle.
- Freezing the entry point for the top tier contribution rate for members earning over £58,973. The higher rate of income tax is being frozen until 2027/28.
- Real-time re-banding. Automating of this process through the Electronic Staff Record (ESR) to ensure member contribution rates are accurate for those who have fluctuating pensionable pay.
- Making overtime for part-time staff pensionable up to 37.5 hours per week in the 2015 Scheme. This proposal aligns the 2015 scheme with the 1995 and 2018 scheme regulations. Overtime would not be pensionable where partial retirement has been taken in the last 12 months.
- Employer contribution rate increase from 20.6 per cent to 23.7 per cent. The increase of 3.1 per cent will be met centrally for most employers. Medical schools will receive 2.64 per cent increase in funding. The funding commitment will be reviewed as part of the next spending review.
- Permanent removal of abatement for Special Class Status (SCS) members.
- Carer’s Leave as provided for in the Carer’s Act 2023.
- Removal of lifetime allowance references, which is dependent on the Finance Act.
- Allowing access to Partial Retirement for those subject to maximum service limits from 1 April 2024. Excluding salary sacrifice arrangements as an eligible means of managing a 10 per cent reduction in pensionable pay for partial retirement eligibility.
You can find more information via the GOV.UK web page NHS Pension Scheme: member contributions phase 2 and miscellaneous amendments.
Proposed member contribution tier structure
Contribution rate from 1 April 2023
Contribution rate from 1 April 2024 Phase 2 proposal
|Up to £13,246
Amalgamate with 6.5% at later date
|£13,247 to £17,673
|£17,674 to £24,022
|£24,023 to £25,146
|£25,147 to £29,635
|£29,636 to £30,638
|£30,639 to £45,996
|£45,997 to £51,708
|£51,709 to £58,972
|£58,973 to £75,632
|£75,633 and above
Freeze entry point to top tier