Getting to grips with NHS superannuation scheme changes
With forecasts of a 25-50 per cent rise in GP pensions within a couple of years, Dr John Couch says it is vital GPs understand new contract changes
From April 1 major changes to the GP superannuation scheme came into force, but many practices are unprepared for these. Since the size of all GPs' pensions depends on our career contributions it is very important for practices and individual GPs to be aware of the changes and ensure that maximum contributions continue to be made regularly. There have been forecasts of a
25-50 per cent rise in GP pensions within the next couple of years which should focus minds and efforts considerably!
Up to now, individual GPs have paid superannuation based on their superannuable income. In the case of GMS GPs, certain payments were 100 per cent superannuable (eg, seniority), others were around two-thirds superannuable (eg, items of service) and the rest were not superannuable at all (eg, staff reimbursement).
PMS GPs paid superannuation based on their last GMS year, uprated for Review Body increases. Finally, salaried and locum GPs paid superannuation based on their NHS earnings.
From now on all principals will pay superannuation based on their 'net NHS profits'. This is defined as total NHS income minus total expenses as part of NHS work. The idea is to continue to make monthly payments on account during the financial year.
Once each practice's accounts have been drawn up by their accountants, a figure for 'net NHS profit' for each principal – based on their profit-sharing ratio – will be calculated. From this the actual 6 per cent employee figure will be calculated and compared with payments already made.
Any shortfall must be made up, so if a GP principal made in-year payments of 6 per cent superannuation based on £70,000 but was found to have net NHS profits of £80,000 in his accounts there would be another 6 per cent x £10,000 = £600 to pay.
How much to pay for 2004/5?
Most accountants are advising principals to pay the same figure they paid in 2003/4, uprated for the 1.47 per cent Review Body award, in monthly instalments. Clearly the new contract brings more money on flow, but the larger chunks of this do not come on line until after April 1, 2005, in the form of quality payments.
It is only aspiration payments and enhanced services that apply for 2004/05 and in many cases these will involve an expenses element. The balancing payment should ensure an accurate picture.
Since there is often a three- to six-month delay after the year end in getting finalised accounts, the balancing superannuation payment is likely to be made well into the next financial year.
Practices will need to bear this in mind in term of drawings and cash-flow. It may be worth having a contingency fund of around £600 per partner.
There is also some confusion regarding how the employers' contribution will be funded for the balancing payment. Some PCOs have said it will not be their responsibility. This is clearly a vital point and all practices must be fully aware of the implications and press this issue via their LMCs.
How should you pay contributions?
In the past, individuals paid 6 per cent of superannuable earnings as an employee contribution while the employing authority, usually the PCO, paid 7 per cent employers' contribution.
With the exception of PMS practices,
the employee contributions were
previously deducted before practices or individuals received their monthly
PMS practices already receive both employers' and employee monies direct, without deduction. They then send the appropriate superannuation, monthly, via their PCO which passes this on to the NHS pension agency.
It was expected that GMS practices would also follow this system as employers' superannuation is included in the global sum/MPIG. As a concession, most PCOs are delaying the start of this to 2005/6. For 2004/5 they will deduct the superannuation at source. Practices should, however, agree their figure with the PCO. They should also insist on a written monthly statement as proof of payment.
Do not forget other NHS work
Any GP, including principals, who also
has an employed NHS post should ensure this is being superannuated by their employer.
Work for other NHS agencies such as co-ops can also count towards NHS pension. Once again all GPs, including principals, can benefit.
Discuss this with the employing agency first as they will probably have a payment system set up. If not, you should be able to pay via your PCO as explained for locums below. Discuss this with the PCO pension officer.
What about salaried GPs/ locums?
There will be no change for salaried GPs or locums. Salaried GPs contributions will continue to be deducted from their monthly salary at source. Locums should continue to keep a record of their NHS work and send this with their 6 per cent contribution to their host PCO on a monthly basis.
The host PCO then adds the employers' contribution before sending payment to the NHS pension agency.
Proof of payment
All GPs should ask their PCO to confirm receipt monthly. All GPs should also continue to receive an annual statement (currently form SD 86C). This usually arrives by June each year and should be checked for accuracy. It is planned that eventually GPs will be able to track their accumulated pension entitlement on line via the NHS pension agency website.
Employers' superannuation contributions rose to 14 per cent from April 1 for GPs and their staff.
At the time of writing, the extra 7 per cent employers' contribution has not been received by PCOs or passed on to practices. While delays of this sort are typical of the NHS the cash-flow problems for practices are considerable.
There are penalties for late payment of superannuation so delaying is not an option. GPs will need to press their PCOs and LMCs with much vigour.
Practices that employ salaried GPs are also in a difficult position with regards to the extra 7 per cent employers' contribution.
PCOs have not yet been told whether extra funding will be available for this.
Once again pressure is required. In the meantime, any practice considering taking on a salaried GP should budget for around 20 per cent on-costs (employers' national insurance and superannuation). Therefore if you offer a £65,000 salary you will actually pay around £78,000!
Maximising your NHS pension
All GPs, including principals, should ensure superannuation payments are made for every element of NHS work, including out-of-hours. In the case of employed GPs this should be at your NHS earnings level.
For principals 'net NHS profits' are vital. We must maximise NHS earnings via Q&O points and enhanced services. We must also check that expenses are at the optimum level for efficiency. Review expenses regularly and ensure extra expenses generate proportionately greater income.
Finally, practices should ensure their accountants are geared up for calculating the year-end net NHS profit figure as quickly as possible.
John Couch is a GP in Ashford, Middlesex