The NHS Pension Scheme offers significant value in retirement to people who have chosen to dedicate part, or all, of their careers to working in the NHS. Backed by the Government, the NHS Pension Scheme offers the security of a guaranteed income in every year of retirement for all its members, in recognition of their service to the NHS.
Gone are the days of a straightforward 6% employee and 14% employer superannuation contribution rate. Tiered employee contribution rates were introduced in 2008 to reflect that higher earners were likely to receive a greater pension than lower earners, in part due to the ‘final salary’ link within the scheme.
The NHS Pension Scheme must be sustainable and the change from ‘final salary’ to ‘career average revalued earnings’ (CARE Scheme) ensures that the costs and benefits of the scheme are more evenly shared across all active members. At the time of print, the employers’ superannuation contributions rate is 20.68% (14.3% being the flat rate paid by the employer with a further 0.08% administration fee, and the balance of 6.3% is paid by NHS England or the Department of Health and Social Care (DHSC), depending on how the employer contract is funded) and members are required to collectively contribute 9.8% across the whole scheme membership to ensure the pension scheme remains viable.
A consultation on the NHS Pension Scheme was launched by the Department of Health and Social Care (DHSC) in 2021, following which amendments were made to the employee tier contribution rates, amongst other things, from 1 October 2022. A second consultation, Phase 2, was launched in November 2023 in which further changes to the pension scheme are proposed, including further amendments to the employee contribution tier rate as well as proposed changes to the employer contribution rate.
Current employee contribution rates
Before 1 October 2022, employee contribution rates were based on the employee’s ‘whole-time equivalent pensionable pay’. From 1 October 2022, when the new employee tier rates were introduced, this was changed to an employee’s ‘actual pensionable pay’.
Since 1 October 2022 there have been a whopping 11 different employee contribution tiers:
Tier
Pensionable earnings (rounded down to the nearest pound)
Contribution rate
1
Up to £13,246
5.1%
2
£13,247 to £17,673
5.7%
3
£17,674 to £24,022
6.1%
4
£24,023 to £25,146
6.8%
5
£25,147 to £29,635
7.7%
6
£29,636 to £30,638
8.8%
7
£30,639 to £45,996
9.8%
8
£45,997 to £51,708
10.0%
9
£51,709 to £58,972
11.6%
10
£58,973 to £75,632
12.5%
11
£75,633 and above
13.5%
Proposed employee contribution rates
The proposed changes will simplify the NHS Pension employee tier rate system, with a number of tiers being scrapped, reducing to six. The top tier rate will drop from 13.5% to 12.5%, however with fewer tiers, more members will be paying employee contributions at the top tier rate of 12.5%. The proposed employee tier rates are:
Tier
Pensionable earnings thresholds
Proposed contribution rate from 1 April 2024
1
Up to £13,246
5.2%
2
£13,247 to £25,146
6.5%
3
£25,147 to £30,638
8.3%
4
£30,639 to £45,996
9.8%
5
£45,997 to £58,972
10.7%
6
£58,973 and above
12.5%
Employer contributions
The current full employer contribution rate of 20.6% came into force on 1 April 2019 following the 2016 valuation (an actuarial assessment of past and future benefits building up within the scheme, carried out in a four-year cycle), increasing from a previous rate of 14.3%.
To help alleviate the financial pressures on employers, NHS England or DHSC (depending on how the employer’s contract is funded) has met the additional cost borne from the significant increase of 6.3%.
The consultation is proposing that the employer contribution rate requires another increase of 3.1% to 23.7% and NHS England or DHSC will continue to meet the difference of 9.4% meaning the actual cost to employers will remain at 14.3% plus the 0.08% administration charge.
It remains to be seen how long the Government will continue to fund the difference between the employer contribution rate and that paid by most employers. One would hope that any additional cost to the employer is covered by a revision in the respective contracts, but we will have to wait and see how this development unfolds over time. Any uncovered passing of this additional cost will undoubtedly have a significant impact on employers’ finances.
We have a long and established history of helping medical clients navigate the complex NHS Pension scheme. If you require further information as to how the proposed changes might impact you, personally or as an employer, please call 0808 1445575 or email help@armstrongwatson.co.uk.
