The NHS pension contribution thresholds in England and Wales for 2023/24 have been slightly revised following responses to a Government consultation that raised concerns about the calculations.
Earlier this month, the Department of Health and Social Care (DHSC) said the tiers or pay thresholds that determine how much an individual puts into their retirement pot, will change in line with the Agenda for Change (AfC) 5% pay award in England.
This adjustment is made annually to ‘reduce the possibility for a small number of members to have a take-home pay reduction as a result of crossing tiers due solely to an increase to the AfC pay bands’, the DHSC said.
However, during a public consultation that closed in mid-May, and which received 138 responses including from the BMA and the NHS Pension Scheme Advisory Board, it was pointed out that the rounding methodology used to calculate the uplift ‘did not produce the full value of a 5% increase for each of the tiers’.
As a result, the contribution structure has been updated (see box below) and now rounds up to the nearest pound ‘when setting thresholds where a 5% increase leads to a level of earnings that does not equal a whole pound’.
However the DHSC said in its consultation response published today, that the NHS pension scheme will continue to round down to the nearest pound for the purposes of calculating pensionable earnings against the member contribution structure.
‘This ensures the best outcome for members, and that all tiers will receive the full value of a 5% uplift,’ it said.
Meanwhile, the DHSC has also promised to review the impact of differing pay awards on the contribution thresholds, in the light of the decision to increase thresholds in line with the AfC in England, despite NHS staff in Wales receiving a higher pay award this year.
The BMA was among the respondents to raise this as a concern. The DHSC said this decision was made because the pay award made in England applies to the single largest cohort of NHS staff eligible to join the NHS Pension Scheme.
And it went on to explain that increasing thresholds in line with the highest pay award would lead to those receiving a smaller pay rise falling into a lower contribution tier, which could pose a long-term risk to the pension scheme since contributions might ‘fall under the yield.’ This would lead to a situation where contribution rates would have to be increased to make up for any shortfall, it warned.
‘The department will review the impact of differing pay awards on the member contribution structure going forward,’ the DHSC said.
It also committed to looking in more detail in a separate review at the bottom contribution tier, which is the only tier that hasn’t been uplifted for 2023/24, sparking concern that it compromises affordability for the lowest paid.
Finally, the DHSC also said it will work to look at ways to speed up the annual process of updating the pension contribution structure so it reflects the AfC pay award for England.
‘It is important that regulation changes are made as quickly as possible following the announcement of the annual AfC pay award to ensure that members do not temporarily pay increased contributions during the period between the pay award being implemented and NHS Pension Scheme regulations catching up,’ the DHSC said.
‘The department will work with the Scheme Advisory Board to consider ways in which this process can be streamlined in future years,’ it added.
Final regulations changing the contribution structure for 2023/24 will be made ‘at the earliest available opportunity’ and be backdated to 1 April 2023.
Revised new member contribution structure to apply from 1 April 2023
|Tier||Pensionable earnings from 1 April 2023 (rounded down to the nearest pound)||Contribution rate from 1 April 2023|
|1||£0 to £13,246||5.1%|
|2||£13,247 to £17,673||5.7%|
|3||£17,674 to £24,022||6.1%|
|4||£24,023 to £25,146||6.8%|
|5||£25,147 to £29,635||7.7%|
|6||£29,636 to £30,638||8.8%|
|7||£30,639 to £45,996||9.8%|
|8||£45,997 to £51,708||10%|
|9||£51,709 to £58,972||11.6%|
|10||£58,973 to £75,632||12.5%|
|11||£75,633 and above||13.5%|
A version of this article was first published by Pulse’s sister title Management in Practice.