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How does GP pension ruling affect you?

Mr Justice Mitting recently ruled that the government had behaved unlawfully in retrospectively introducing a limit on the amount GPs could receive in their NHS pensions - Shane Stack discusses the implilcations

Mr Justice Mitting recently ruled that the government had behaved unlawfully in retrospectively introducing a limit on the amount GPs could receive in their NHS pensions - Shane Stack discusses the implilcations

The Department of Health has finally surrendered in its battle with the BMA over a decision made by Patricia Hewitt in 2006 when she was health secretary.

The High Court ruled in March that the Health Secretary had behaved unlawfully when she announced she was retrospectively changing the previously agreed formula for calculating pension dynamising factors under the new GMS contract negotiated in 2003.

The hearing took place over two days 12th &13th March at the High Court. The BMA was awarded its legal costs. So what are the implications for GPs' pensions?

What is dynamising?

GPs' pensions are calculated by adding each year's dynamised (uprated) superannuable income together and multiplying it by 1.4%. Dynamising is a factor (DF) applied to each year's earnings to take them up to a current value.

For example, the factor for 1980 is currently 5.273, so a GP with actual earnings of £19,727 in 1980 would equate to £104,020.47 in today's terms.

Under the terms of the new contract is was agreed that as GPs' incomes are likely to rise significantly over the period 2003 to 2006, and as the formula for calculating is directly linked to the increase in income over the previous year, then the DFs for that period were also likely to be significant.

What was changed?

The original agreement was to increase all GPs' accrued pension benefits to date by applying a dynamising factor over 3 years (31.3.2003 to 31.3.2006) by the same figure that average profits rose over that period.

This was estimated at the time by the GPC to be in the region of 46% to 56%. This meant those retiring from 1.4.2006 would be the biggest winners as they would see massive increases in their pensions in the same region - i.e. between 46% and 56%. Those not retiring for many years would still benefit from this enhancement.

In 2006 the DoH changed this to a 5 year time scale (31.3.2003 to 31.3.2008) and imposed their own dynamising factors (DF) of:-

2004/5 6.9%

2005/6 7.3%

2006/7 6.9%

2007/8 6.9%

These, when added to the already published figure for 2003/04 of 12.9% made a total of 48% over 5 years instead of 3.

A lot of GPs had already retired or were about to, based upon the original information: therefore they had the rug pulled from beneath them.

Following he court ruling, the dynamising factors for 2004 to 2008 will now have to be recalculated, according to the original formula - the difference (nationally) in GP's earnings between the year in question and the previous year.

When will the revised dynamising factors be known?

The figures for 04/05, 05/06 and 06/07 should be available shortly as the increase in earnings over these periods are known. But the figures for 07/08 won't be known for at least another 12 months.

What difference does the 3 year time scale make?

For those not yet retired it means an extra 2 years of dynamising will now take place, which would not have happened if the ruling had gone against GPs. For those already retired the actual amounts involved are hard to quantify as the 2004/2005 dynamising figure has yet to be calculated (let alone the figure for subsequent years).

It is estimated however that the increase will be in the region of 15% to 20%.

Who are the main winners and losers from the High Court ruling?

There are no losers and all GPs that are pre-retirement members of the NHSPS between 2003 and 2006 are winners.

The main winners are those GPs that retired after 31.3.2006 with large pensions as they will now be retrospectively increased to compensate for the unlawful change imposed.

The amounts involved will depend upon the pension being received.

Therefore the increase can be in the region of a few hundred pounds per annum up to potentially thousands of pounds per annum for those on the largest pension. In addition a lump sum of 5 times the pension (3 times as per scheme rules plus making good the last 2 years) will be payable.

In my opinion it is very satisfying to see at least one of this government's immoral and, as it turns out, illegal decisions overturned.

As BMA pensions committee chairman Dr Andrew Dearden said: "A precedent has been set in law because for the first time our GMS (blue book) contract has been recognised as a contract and not a loose agreement, as the DoH tried to argue.

"The government have been completely incompetent in initially underestimating the impact of the deal (even thought we provided estimates showing DFs of 50+% for 03/06) and then trying to renege on the deal once they did appreciate the enormity of it"

Case histories

I retired in April 2006. When will I know and how much extra will I get?

That's hard to tell at the moment but the Technical Steering Committee have already got most of the information they need to publish the proper dynamising factors so it should be a matter of weeks.

The actual process of increasing the pensions of those that have already retired may take longer.

The amounts involved are obviously directly linked to the amount of pension already received.

If we take an example of a GP who retired April 2006 on a pension of £50,000 pa. The manipulated dynamising factor (DF) for 03-06 was 29.5%. Assuming the increased or actual factor turns out to be nearer 50+% as estimated by the BMA, then the £50,000 pension will be increased to £57,692 pa plus a lump sum of £38,460 (plus interest – one hopes!).

I don't retire until 2013. Will I benefit from this decision?

Yes. All GPs that did not retire before April 2004 will benefit. Those closest to retirement will benefit the most, younger GPs less so.

Shane Stack is a partner at specialist medical independent financial adviser Medical Money Management shane.stack@mmmnet.co.uk

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