James Gransby

Written by: James Gransby

James Gransby

Partner

Over three quarters of NHS workers affected in proposed pension contributions shake up

Figures suggest over three quarters of NHS pension scheme members will see their tiered rate of pension contributions increase as part of the changes proposed by the Department of Health and Social Care. Contributions will increase by up to 1.5 per cent in some cases, reducing take home pay. NHS workers will be further squeezed by the 1.25 per cent Health and Social Care Levy, the revenue from which is unlikely to make its way into the pockets of many of these workers.

Generally, only those earning over £47,846 will be protected from the proposed increases, with anyone earning above those levels either seeing their contributions stay the same or reduce   . Those earning over £111,377 would see their contribution drop from 14.5 per cent to 12.5 per cent if the draft proposals go ahead.

A key reason for the change in rate for higher earners is that their pension from April 2022 will be on a ‘career averaged’ basis which is often less generous compared to their previous ‘final salary linked’ version.

There could also be further bad news on the horizon in 2024.

In July 2020 the Government estimated that removing the unlawful age discrimination highlighted in the McCloud judgment will cost on average around £2.5bn in additional future pension payments for each of the seven years in the 2015 to 2022 remedy period. This equates to approximately £17bn for the whole remedy period across all affected public sector pension schemes. This cost will be factored into the 2020 scheme valuations with employer contribution rates changing from April 2024 to reflect any uplifts required.

Whilst NHS workers might be shielded from any future changes to employer contributions, one particular group who could see an impact from this would be GP partners who pay the employer contributions for their staff members. In recent years, a previous 6.3 per cent uplift in employer contributions has been paid centrally on their behalf until at least 31 March 2022 in England, but whether this will be the case long term, or for any future increases, is yet to be seen.

There is an urgent need for the Government to provide financial respite for the NHS workforce who have not only been on the front line of the pandemic response, but may also be feeling unfairly hammered financially with a below inflation pay award, increased taxes and these proposed elevated pension contributions.

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