The Department of Health and Social Care has expanded on its plans to change the way member contribution rates are calculated and decided in the NHS Pension Scheme, launching a new consultation laying out its proposed uplifts to contribution tier thresholds.
The decision to overhaul the way in which members pay contributions was announced in a consultation in October last year. Some of the changes mentioned were due to come into force from April, but were delayed until October 2022 following feedback from the consultation, to which the government responded in February.
Part of the proposed package of reforms would see contribution rates based on actual pensionable pay rather than the notional whole-time equivalent pay model that was used hitherto, while the total number of contribution tiers would be reduced, or “flattened”, over the course of two years.
The overall effect of the proposals would see certain poorer members contributing more, and some of the highest earners contributing less than under the existing system.
Agenda for change
The new consultation builds on the work of the first, setting out how pensionable earnings thresholds will be uplifted to account for the government’s “agenda for change” pay awards to NHS staff.
The original consultation asserted that such an increase to contribution tier boundaries would be necessary to “maintain the yield” and “reduce the possibility for a small number of members to have a take-home pay reduction”.
That consultation also proposed that earnings ranges in the contribution tiers should increase each year in line with the agenda for change pay award, given that award applies to the largest proportion of scheme members.
In the preamble to the latest consultation, the DHSC said its proposals “received support during the consultation process, with 67 per cent of respondents agreeing that the thresholds should be uplifted in accordance with the AfC pay award”.
The purpose of the new consultation is to gain views on draft amending regulations that would enable new legislation to be enacted quickly, once the pay award has been announced.
It explained that its first amending regulations created two contribution rate tables, which would enable members who have their contribution rate based on their previous year’s pensionable earnings “to use the contribution rates before any increase to tier boundaries is applied”.
It would also enable members who have their contribution rate based on current pensionable earnings to “use contribution rates that have increased in line with the AfC pay award for that scheme year (which will be updated by amendment regulations following the AfC award announcement)”, the DHSC consultation explained.
Each table contains 11 tiers. No change is incurred between past and present pensionable pay for those in the bottom two tiers (earning up to £15,431), while every earnings tier above that — accounting for earnings of £15,432 and above — would see an increase, generally of £1,400.
