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Locum GP? Watch out for the new pension trap

Specialist medical accountant James Gransby explains how a three-month break from locum work can lead to a hike in pension contributions

james gransby crop

GP locums taking a work break of over three months in any tax year could be caught by new rules that will increase the cost of their pension contributions.

The rules were introduced on the 2017 Locum B form, which is used to pay over monthly pension contributions to the NHS pensions agency. They affect GP locums who are members of the 2015 pension scheme.

All GPs who have qualified in the past five years will therefore be automatically affected, as will any GP locum meeting these criteria:

  • already a pension scheme member on 1 April 2012 with a birthday falling on or after 1 October 1965
  • joined the pension scheme since 1 April 2012
  • re-joined the pension scheme since 1 April 2012 after a break of more than 5 years.

How do the rules work?

If a GP has a work break of greater than three months and then works a session, his or her income will be annualised in order to calculate which tiered percentage rate applies to their employee pension contributions. This may hike the contribution they need to pay considerably.

Below are the tiered rates for pensionable income levels, effective from 1 April 2017

 Total pensionable incomeContribution rate

 Up to £15,431.99

5%

£15,432.00 to £21,477.99

5.6%

£21,478.00 to £26,823.99

7.1%

£26,824.00 to £47,845.99

9.3%

£47,846.00 to £70,630.99

12.5%

£70,631.00 to £111,376.99

13.5%

£111,377.00 and over

14.5%

 

 

 

 

 

 

 

 

 

How much impact will this have?

This is nicely highlighted by the example given in the Locum B pension form. Dr C is a GP locum who is a member of the 2015 NHS pension scheme. He performed irregular pensionable GP locum work during 2017/18 where there were breaks exceeding three months. He worked a total of 60 days and earned £30,000.

Dr C’s contribution rate is based on his annualised (not actual) GP locum pensionable income in 2017/18, calculated as follows:

£30,000 divided by 60 days multiplied by 365 days = annualised pay of £182,500, meaning the tiered rate of 14.5% applies.

Dr C pays £4,350 (£30,000 x 14.5%) in tiered contributions, instead of £2,790 (£30,000 x 9.3%).

What if I combine locum and salaried work?

GPs combining a salaried role and locum GP work could easily be affected by this too, if the locum work is irregular and includes a three-month break. This is because the salaried role does not count towards the continuation of work, as demonstrated by the following example.

Dr E, a 2015 pensions scheme member, was a part-time (three days a week) salaried GP during 2017/18. Although her salaried GP post was part-time it was continuous throughout 2017/18 and her salary was £40,000. She also performed irregular GP locum work in 2017/18 over 40 days and earned £25,000.

Because Dr E had breaks in her GP locum work exceeding three months her pay of £25,000 must be annualised.

£25,000 divided by 40 days multiplied by 365 days = annualised pay of £228,125.

Annualised GP locum pensionable pay of £228,125 + actual salaried GP pensionable pay of £40,000 = £268,125, meaning a tiered rate of 14.5%.

Dr E pays 14.5% tiered employee contributions on both her salaried GP pay of £40,000 and her GP locum pay of £25,000.

Dr E’s salaried role also had the higher tiered rate applied because of the break in locum work. This would equate to an extra 2% of pension contributions on the total income as the tiered rate would otherwise have been 12.5%. This would cost Dr E an extra £1,300.

Salaried GPs who only do very rare locum work, for example because they have a steady employed position but help out another local practice now and again, could be particularly badly affected.

For example, if a GP locum worked for 40 days at £600 per day at the start of the year, totalling £24,000, and then stopped working for the rest of the year the tiered rate would be 7.1%. This would give a total employee superannuation figure of £1,704 for the year.

By doing just one session later in the year after a three month break the figures would be based on a 14.5% tiered rate costing an extra £1,776 in employee superannuation contributions. This would therefore have been a very costly session to have undertaken.

Note that the employer superannuation figure payable in all examples would be 14.38% throughout since this is not tiered.

What can locum GPs do?

To prevent their pay being annualised and a higher employee pension contribution rate being applied, affected GP locums should plan ahead and avoid a break in their locum work of three months or longer from now on. It would be good practice to keep a diary log of sessions performed to check against the three-month break rule. An extra session at the wrong time could end up costing you more than the amount earned.

James Gransby is a partner at MHA MacIntyre Hudson, Maidstone, and is a member of the Executive Committee of the Association of Independent Specialist Medical Accountants

 

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Readers' comments (9)

  • WHY? I don't understand what the thinking is behind this change? Are they someone potentially getting too much in the way of benefits from the scheme in retirement if they take a 3 month break?

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  • The nhs pension scheme has become a toxic mess. I had to get out as I was paying 28% of my income to it and then paying more tax on the ‘pension growth’ that’s real tax on imaginary income. Worst news is that there will be no one left in this Ponzi schemeby the time I retire, and I don’t trust the government to ever let me draw the money that I’ve put in over 30 years.
    Bad news for Locum s and salaried but I’m paying their employers contribution for them as well!

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  • Like the article at NASGP highlights, this is a huge disincentive to doing the occasional day locum work!
    I presume the NHS still needs to find ways to reduce the number of GPs available for work in Britain!
    Locum work overseas, being non-pensionable, is much cheaper to do, and more fun too!

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  • This comment has been removed by the moderator

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  • makes sense really as they are taking the day rate and saying your a hi earner per day so should pay the higher level even if you don't work many days so I can see the logic

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  • Do you get a rebate at a later date if your actual pay for the year was less?

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  • The reality is even worse than this article states. A gap of 1 month between salaried posts will lead to annualising too. And if you change status from salaried to locum or locum to salaried during the year then both income streams are annualised even if there is no break in service. This almost inevitably puts you in a higher contribution tier. It might also apply to someone who just quits during the year, a new GP starting a salaried job in August, or is ill, or retires. Krishan Aggarwal of the sessional GPs committee is on to this. Also see the threads on GP Survival and NASGP facebook pages.
    Looks to me that this was badly drafted and has unintended consequences but the powers that be don't want to lose face and admit it.

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  • Hi Perhaps someone who understands these things better than me could help out ? Do these rules apply already ie from April 2017? The implication is locums / salaried GPs only need to start making changes to any income streams from now on, but I think the rules changed in April last year ie 9 months ago ???

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  • Just come out of the stupid scheme and then nothing to worry about.
    It's almost bad for your health to be in the scheme now, with constant worry, sudden changes, and all at the whim of whatever minister happens to be in post.
    The pension used to be a genuine perk of the job. Now it's nothing but a fractious liability that is being dismantled piecemeal.
    Came out 3 yrs ago when reached £1.27m and never regretted it for a minute.

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