On 15 October 2021 the Department of Health and Social Care issued a consultation document regarding proposed changes to members contributions. The consultation process closed on 7 January 2022 and the response was published on 15 February 2022.
The main reason for changing the system related to the shift away from a final salary pension scheme to a career average revalued earnings (CARE) model. In 2008, tiered contribution rates were introduced to reflect that higher earners were likely to receive proportionally more benefits than lower earners over the course of their retirement, due in part to their final salary link. To ensure the cost of the NHS Pension Scheme was fairly distributed and affordable for all members, higher earners were required to pay proportionately more than lower earners.
As the NHS pension scheme has moved from a final salary to a CARE model it is considered appropriate to review the contribution rates.
Head of Healthcare, Andrew Leal summarises the key changes in this short explainer video below:
The consultation included the following proposals:
- Members’ contribution rates would change to be based on actual pensionable pay instead of members’ notional whole-time equivalent pay.
- The structure for member contributions would change. In particular there would be fewer tiers narrowing the gap between the lowest and highest rates.
- The thresholds for the member contribution tiers would be increased in line with annual Agenda for Change pay awards. This change would help reduce the risk of a small pay increase resulting in lower take-home pay.
- The proposed changes would be phased in over 2 years starting from 1 April 2022.
Following the consultation there have been a number of changes including the following:
Timing of the change
Concerns had been expressed about the impact of these changes on take home pay. The changes have therefore been delayed until 1 October 2022. The result is that the changes will now be better aligned with the timing of the new pay review process, which may help to mitigate the impact on take home pay for some staff in the short term.
Aggregation of income from multiple part-time employments
While it is considered fairer if income from multiple employments are aggregated when setting member’s contribution rates, if the process can’t be fully automated, it would create significant additional work for employers. It has therefore been decided to postpone aggregation to allow more time to develop the solutions and processes required to administer aggregation effectively.
Assessing contribution rates for new bank staff
Bank staff will have their contribution rate based on their previous year’s annual rate of pensionable pay. Guidance will be provided to employers to help determine the rate for staff in their first year of bank work, based on an estimate of their likely earnings over the course of the pension scheme year.
The New contribution rates areas follows:
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