• Treasury has confirmed it will cover the additional cost, in line with last year’s funding agreement
  • Change prompted by scheme being revalued
  • But consultation respondents raised concerns new rate was too high

The proportion employers will be expected to contribute to the NHS Pension Scheme will rise next month, the government has revealed.

The Department of Health and Social Care confirmed in its response to a public consultation that it will implement a new contribution rate of 20.68 per cent for employers from 1 April, an increase of 6.3 percentage points compared with the current contribution rate of 14.38 per cent. 

The Treasury has, however, confirmed with HSJ that it will cover the cost increase for NHS employers in line with the agreement with the DHSC last year over NHS funding.

The change in the rate was prompted by the revaluation of the scheme, which suggested a higher employer’s contribution rate was needed. This was partly caused by the Treasury announcing the superannuation contributions adjusted for past experience discount rate – which is used when forecasting what contributions are needed to make sure public sector pension schemes are able to meet their future liabilities – would be lowered at the 2018 Budget. 

The consultation document noted many of the respondents disagreed with the proposal, raising concerns the increase was too high and the financial burden may force employers to review their workforce. 

In addition to the funding settlement for NHS England, announced in June 2018, the government said in its consultation response it would also provide funding for NHS pensions costs until 2023-24, including both predicted and unforeseen costs.

For other public pension schemes, the government will cover £4.7bn of additional costs in 2019-20, but funding for future years will be determined in the upcoming spending review. 

Member contributions will remain unchanged until March 2021, in line with a recommendation from the Scheme Advisory Board. 

The DHSC also confirmed from the 2017-18 tax year, Scheme Pays could be used to meet any pension tax charges.

Under Scheme Pays, which is operated by NHS Pensions, part of the NHS Business Services Authority, individuals can ask for tax bills on pension contributions worth more than £40,000 a year to be paid out of their own pension pot.

This could be of particular benefit to staff who have been hit with charges due to breaching the lifetime pension tax relief allowance.

Deborah Wood, vice chairman of the Association of Independent Specialist Medical Accountants, said: “From a cashflow point of view there will be no immediate effect on the majority of NHS employers, including hospitals, trusts and GP practices. In 2020-21 employers will pay the full 20.68 per cent but should have received funding to cover the extra cost.

Ms Wood continued: “The tax impact on individual employees, particularly GPs who are deemed to pay their own employer contribution for tax purposes, needs to be understood.

“If HMRC takes into account the additional 6.3 per cent when determining exposure to the pension annual allowance and subsequent tax charges, then an increasing number of GPs could find themselves affected by annual allowance tax charges on a regular basis.”