Govt launches consultation on NHS pension scheme changes

The government has launched a consultation on proposed changes to the contributions that members pay into the NHS Pension Scheme in light of the move to a career average revalued earnings (CARE) model.

Under the proposals, members’ contribution rates would change to be based on actual pensionable pay instead of members’ notional whole-time equivalent pay.

This would mean that many part-time members would see their contribution amounts reduce, and is a reflection of the increasing number of scheme members with no active final salary link.

The structure for member contributions would also change, with the government proposing a reduction in the number of tiers to ‘flatten’ the contribution model, as well as a reduction in the highest contribution tier to 12.5 per cent.

"This is because a high level of cross-subsidy between higher and lower earning NHS Pension Scheme members is no longer appropriate in a CARE scheme, where all members get the same proportional benefit," the consultation explained.

The change was also designed to ensure the required yield of 9.8 per cent average member contribution is met while protecting the affordability of the scheme for the whole NHS workforce.

In addition to this, the thresholds for the member contribution tiers would be increased in line with annual Agenda for Change pay awards, with this expected to benefit members who, under the current structure, may find that small salary increases can lead to moving up a contribution tier, and in turn, a net reduction in take-home pay.

The government has suggested phasing in the proposed member contribution structure over 2 years from 1 April 2022, with the final changes made from 1 April 2023, in an attempt to minimise the impact on take-home pay while giving members time to adjust to the changes.

The consultation stated: "As the NHS Pension Scheme has moved from final salary linked to a 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."

The consultation closes on 7 January 2022.

    Share Story:

Recent Stories

A time for fixed income
Francesca Fabrizi discusses fixed income trends and opportunities with Goldman Sachs Asset Management Head of UK Pensions Solutions, Fixed Income Portfolio Management, Henry Hughes, in our Pensions Age video interview

Purposeful run-on
Laura Blows discusses purposeful run-on for DB schemes with Isio director, actuarial and consulting, Matt Brown, in Pensions Age’s latest video interview
Find out more about Purposeful Run On

Keeping on track
In the latest Pensions Age podcast, Sophie Smith talks to Pensions Dashboards Programme (PDP) principal, Chris Curry, about the latest pensions dashboards developments, and the work still needed to stay on track
Building investments in a DC world
In the latest Pensions Age podcast, Sophie Smith talks to USS Investment Management’s head of investment product management, Naomi Clark, about the USS’ DC investments and its journey into private markets