Partners to pay higher employer pensions contributions following Government cost savings
GP contractors face paying higher pension contributions for their employees from 2015, after the Government announced further cost savings were needed in the NHS Pension Scheme.
The Treasury said a review of all public pensions schemes will ‘introduce new higher employer contribution rates’ across the board.
The GPC said it was seeking clarification around the changes, but it looked like ‘bad news’ for GPs, while medical accountants said the announcement would mean GPs’ employer contributions to staff pensions would increase.
However, it is unclear how much extra expense GPs will incur until the results of the review are published later in the spring, or whether NHS England will increase income to compensate for the increased costs.
This latest blow follows on from controversial decisions to bring in a tiered contribution system for NHS pension employee contributions, meaning GPs will have to pay a higher proportion of their income, and the raising of the normal pension age.
Meanwhile, tax relief on pensions contributions is being reduced from this April, leaving many GPs with higher tax bills.
In a written ministerial statement on Thursday, chief secretary to the Treasury Danny Alexander said that the size of the rise in contributions will be decided by a valuation of all public sector pension schemes and the employer ‘cost cap’, which currently regulates how much employers should pay.
However, he added that it was ‘already clear’ that contributions would need to rise to cover a £1bn shortfall across the schemes for the NHS, teachers and civil service.
Mr Alexander said the Government had ‘made directions’ that would form the basis of ‘full actuarial variations of the schemes’, adding it was the first time such valuations had taken place of all public sector pensions schemes simultaneously. .
The statement added: ‘The final results for the NHS, teachers and civil service schemes will be published later in the spring. But it is already clear that these will show the level of contributions paid by employers have not been sufficient to meet the full long-term costs of these schemes. If current rates were allowed to continue the shortfall would be nearly £1bn a year across the teachers, civil service and NHS schemes.’
‘The Government is therefore taking corrective action, and will introduce new higher employer contribution rates for these schemes from 2015. This will ensure that the contributions paid by public service employers reflect the full costs of the schemes, including the costs of the deficits that have arisen since previous valuations.’
Dr John Canning, chair of the GPC pensions committee, said: ‘As I read it, this is bad news and seems to reverse the previous policy.’
Combined with changes to tax reliefs on pensions, this constitutes a ‘massive hit’, Dr Canning added.
Medical accountant Luke Bennett, partner at Francis Clark LLP, said: ‘It appears to be suggesting that the employer - but not employee - contribution rate will increase in April 2015, but doesn’t say by how much.’
‘The NHS scheme, along with teachers and civil service, is specifically mentioned, so yes this will affect GPs. The responsibility [for paying the increased employer contributions] will fall first on the GPs. Whether the Government will then increase their income to compensate for this is a moot point.’