Proposed changes to member contributions from 1 April 2022
The case for change
The NHS Pension Scheme is designed to offer significant value in retirement to people who have chosen to dedicate part, or all, of their careers to serving the public through the NHS. Backed by the Exchequer, the NHS Pension Scheme offers the security of a guaranteed income in every year of retirement for all its members, on some of the most generous terms available from a pension scheme, in recognition of their service to the NHS and the country.
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, these tiered contribution rates asked higher earners to pay proportionally more than lower earners to access the valuable benefits of the scheme.
As the NHS Pension Scheme has moved from final salary linked to a career average revalued earnings (CARE) model, all members will build up CARE benefits from 1 April 2022. This change ensures that the costs and benefits of the scheme are more evenly shared, and will be introduced as part of the McCloud remedy.
As such, now is an appropriate time to seek views from all interested parties to inform changes to member contributions, with a view to preserving participation in the Scheme while protecting its substantial value for members in retirement.
This consultation document sets out the changes proposed to the contributions that members pay towards the NHS Pension Scheme, and the rationale for these changes. We welcome responses from all those affected by and interested in the proposals.
Summary of the proposals
Following extensive consultation with the Scheme Advisory Board to inform positive policy development on members’ pension contributions (summarised below in ‘Member contributions’), the proposals presented for consideration in this document include:
1. Members’ contribution rates would change to be based on actual pensionable pay instead of members’ notional whole-time equivalent pay.
As a reflection of the increasing number of scheme members with no active final salary link, this change would mean that many part-time members will see their contribution amounts reduce. Members who work part-time would benefit from their contributions more accurately reflecting the amount of pension they are building. You can read the full rationale for this change below in the section ‘Design feature: contribution rate is based on actual annual pensionable pay’ below.
2. The structure for member contributions would change.
Heavily informed by stakeholder collaboration, the section ‘Design feature: fewer contribution tiers’ below sets out the proposed member contribution tiers, including a reduction in the number of tiers to ‘flatten’ the contribution model. These have been designed to ensure the required yield of 9.8% average member contribution is met while protecting the affordability of the scheme for the whole NHS workforce.
3. The thresholds for the member contribution tiers would be increased in line with annual Agenda for Change pay awards.
This change will benefit members who, under the current structure, find that small salary increases due to centrally agreed annual pay awards can lead to moving up a contribution tier, and a net reduction in take-home pay. You can read the full rationale for this change in the ‘Design feature: tier boundaries increase in line with annual AfC pay awards’ section below.
4. The proposed member contribution structure would be phased over 2 years.
As the proposals mean that some members will see an increase in their pension contributions, the changes would be communicated clearly and phased in over 2 years starting 1 April 2022, with the final changes made from 1 April 2023. This approach is designed to minimise the impact on take-home pay while giving members time to adjust to the changes. The full rationale for phasing is in the section ‘Implementing the proposals: phasing in the new rates’ below.
More information can be found here.