Pension contributions for senior managers will rise by as much as £140 a month under new proposals.

Pension contributions for senior managers will rise by as much as£140 a month under new proposals.

The pensions scheme put forward by NHS Employers following three years of negotiations with nine 'staff-side' organisations recommends that the current universal employee contribution of 6 per cent is tiered so staff pay greater or smaller contributions based on their salary level.

All NHS staff except the very lowest paid will see their contributions rise by at least half a percentage point, but bigger earners will see bigger increases. The changes will come into effect at the end of 2007.

That means managers at the top of Agenda for Changeband 8D, earning around£70,000, will pay roughly£55 more (after tax relief) into their pension, and very senior managers earning£110,000 will pay around£140 a month more.

However, very senior managers and doctors will be able to enjoy bigger pensions under the deal as the£108,000 cap on pensionable earnings has been lifted.

The tiered system has been agreed as part of the negotiators' effort to protect 'final salary' based pensions. A change to the existing scheme has been proposed: the final salary figure used will be an average of the three best-paid consecutive years out of the final 10 years of service to allow people nearing retirement to take a pay cut without it affecting their pension.

Although employee contributions have risen, the new pension scheme will see employer contributions kept at current levels - 14 per cent. Under the current scheme NHS employer costs were estimated to rise to£1.2bn a year in 30-40 years' time. The Treasury would not have signed off a deal that did not ensure that future pressure on the public purse was averted.

NHS Employers lead negotiator on pensions Tim Sands said: 'Managers gave us a clear message in terms of being responsible for organisations that they could not afford to be paying higher contributions as employers,' he said.

He added that both senior managers and doctors recognised that the current system of one rate for all was 'inequitable'.

However, union Managers in Partnership chief executive Jon Restell said he and his members would need to decide if the extra payments were an 'acceptable price to pay for maintaining the final salary scheme'.

The proposals, which will affect new entrants to the NHS or existing staff that choose to transfer, will be out to consultation until November and a final deal will be presented to the government in December.

Meanwhile, NHS Employers is also consulting on changes to redundancy and retirement terms and conditions for NHS staff to bring them into line with forthcoming age discrimination legislation.

The changes - which must take effect when the legislation comes into force on 1 October - mean that redundancy and retirement packages will be based on length of service rather than age, as is currently the case.

The main proposals are:

  • existing staff will be protected from any changes until 30 September 2011;
  • deals will be based on a flat rate of one month per year of service with a maximum of 24 months' pay;
  • staff over the minimum pension age (currently 50 but rising to 55 under the new scheme) threatened with redundancy can choose to take early retirement instead with no reduction in the value of their pension;
  • pension value will be protected if staff decide to take early retirement 'in the interests of the service'.

Consultation on these changes is open until 11 September.