Changes to the NHS pension scheme in England and Wales will see an uplift to member contribution thresholds for 2023/24.
The move will reduce the likelihood of GPs, practice managers and other staff having to divert a bigger portion of earnings into their pension – and seeing a cut in take-home pay – as a result of any pay rise they receive.
The contribution structure of the pension scheme, which is currently made up of 11 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) 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 has said.
The changes for 2023/24 have been set out in a DHSC consultation paper launched earlier this month.
All but one of the 11 current tiers will increase to reflect the 5% AfC pay deal, with the new thresholds backdated from 1 April 2023 (see table below). Tier 1, which captures the bottom rate of pensionable earnings, has been frozen.
The consultation paper explained that although not all NHS staff are on Agenda for Change – GPs and many practice teams, in particular – because employees working under AfC represent the largest single group of health service staff eligible to join the NHS Pension, it makes sense to align it with their pay deal.
The DHSC said the same rationale is used to explain why the changes in the contribution structure apply in Wales too, even though ‘there might be differences between the AfC pay award in England and the AfC pay award applicable to Wales’.
Taking this approach means ‘that the contribution tiers…remain consistent across all areas of the NHS workforce,’ it explained.
Madeleine Dowling, technical manager at Wesleyan, the specialist financial mutual for doctors, said that this consultation contained no surprises. It sets out proposals that are fully in line with the NHS pensions overhaul, the first stage of which came into effect in October 2022, she explained.
Ms Dowling added: ‘As part of the original consultation on pensions in 2022, it was agreed that the bands would increase annually by the AfC increases. It has recently been agreed to increase the salaries for AfC employees by 5% and this consultation simply increases the bands by 5% as agreed. It ensures that no-one skips pay bands because of annual pay increases.’
Meanwhile, a second round of changes to pension contribution tiers is also still expected to take place in October 2023.
‘This change will reduce the number of tiers down from 11 to six,’ said Ms Dowling. ‘We are still awaiting consultation on that.’
The current DHSC consultation closes at 11:45pm on Wednesday 17 May.
Proposed member contribution structure 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 £29,634||7.7%|
|6||£29,635 to £30,638||8.8%|
|7||£30,639 to £45,995||9.8%|
|8||£45,996 to £51,707||10%|
|9||£51,708 to £58,971||11.6%|
|10||£58,972 to £75,632||12.5%|
|11||£75,633 and above||13.5%|
The changes were:
- The Lifetime Allowance charge will be removed before being abolished altogether, ‘removing barriers to remaining in work and simplifying the tax system by taking thousands out of the complexity of pension tax.’
- The Annual Allowance will be increased from £40,000 to £60,000, in order to ‘incentivise highly-skilled workers to remain in the labour market.’
A version of this story was first published by Pulse’s sister title Management in Practice