Consultation outcome

NHS Pension Scheme: proposed changes to member contributions: consultation response

Updated 15 February 2022

Introduction

The NHS Pension Scheme is designed to offer significant value in retirement to people who have chosen to dedicate part, or all, of their careers to serving the public through the NHS. Backed by the Exchequer, the NHS Pension Scheme offers the security of a guaranteed income in every year of retirement for all its members, on some of the most generous terms available from a pension scheme, in recognition of their service to the NHS and the country.

In 2008, tiered contribution rates were introduced to reflect that higher earners were likely to receive proportionally more benefits than lower earners over the course of their retirement, due in part to their final salary link.

To ensure the cost of the NHS Pension Scheme was fairly distributed and affordable for all members, these tiered contribution rates asked higher earners to pay proportionally more than lower earners to access the valuable benefits of the scheme.

As the NHS Pension Scheme has moved from final salary linked to a career average revalued earnings (CARE) model, all members will build up CARE benefits from 1 April 2022. This change ensures that the costs and benefits of the scheme are more evenly shared, and will be introduced as part of the McCloud remedy.

As such, a public consultation was published on 15 October 2021 and views were sought from all interested parties to inform changes to member contributions, with a view to preserving participation in the scheme while protecting its substantial value for members in retirement. The department has sought to reach agreement on the proposals through public consultation and consultation with key stakeholders through the Scheme Advisory Board.

The proposed amendments in the consultation were to:

• change members’ contribution rates so that they would be based on actual pensionable pay instead of members’ notional whole-time equivalent pay

• amend the structure for member contributions and the amount of member contributions payable by different cohorts of members

• annually increase the member contribution tier thresholds in line with Agenda for Change (AfC) pay awards

• phase in the member contribution structure over 2 years

This document sets out the department’s response to comments received through public consultation.

Consultation process

The proposals and draft regulations were subject to public consultation which began on 15 October 2021 and ended on 7 January 2022. A consultation document describing the proposals and draft regulations was published on GOV.UK and a consultation platform, with responses invited through the consultation platform or by email.

The larger NHS trade unions, a number of NHS employers, and other interested parties were formally notified of the consultation.

Prior to publication of the consultation document, the department was working with the Scheme Advisory Board to review the member contribution structure. The Scheme Advisory Board is a statutory board comprising trade union and employer representatives, that advises the Secretary of State for Health and Social Care on the merits of making changes to the NHS Pension Scheme.

The department welcomed any comments or views on the proposals and draft regulations.

A total of 1,031 responses were received, with 982 responses received through the consultation platform and 49 responses received by email. The responses came from individuals, trade unions, employers and other organisations, including:

• the Scheme Advisory Board

• NHS Employers

• NHS Providers

• the NHS Business Services Authority

• NHS trusts

• local government organisations

• trade unions

The British Medical Association (BMA) also provided their members with template wording to assist them in writing their consultation response. Approximately 100 responses were made using the BMA’s template as a basis and some of these respondents also included additional commentary.

A small number of responses were received shortly after the deadline. These responses have also been considered and included in the above total.

Some respondents took the opportunity to express views on topics related to the NHS Pension Scheme but outside of the scope of the consultation.

The department is also grateful for the suggestions that respondents made to improve the format and response methods. These comments will be considered for future public consultation exercises.

Summary of proposals

This section briefly summarises the proposals as outlined in the initial consultation document.

1. Members’ contribution rates would change to be based on actual pensionable pay instead of members’ notional whole-time equivalent pay.

As a reflection of the increasing number of scheme members with no active final salary link, this change would mean that many part-time members will see their contribution amounts reduce. Members who work part time would benefit from their contributions more accurately reflecting the amount of pension they are building.

2. The structure for member contributions would change.

Heavily informed by stakeholder collaboration, the proposed member contribution tiers were set out in the consultation document, including a reduction in the number of tiers to ‘flatten’ the contribution model. These have been designed to ensure the required yield of 9.8% average member contribution is met while protecting the affordability of the scheme for the whole NHS workforce.

3. The thresholds for the member contribution tiers would be increased in line with annual AfC pay awards.

This proposal would benefit members who, under the current structure, find that small salary increases due to centrally agreed annual pay awards can lead to moving up a contribution tier, and a net reduction in take-home pay.

4. The proposed member contribution structure would be phased over 2 years.

As the proposals mean that some members will see an increase in their pension contributions, the changes were proposed to be communicated clearly and phased in over 2 years starting 1 April 2022, with the final changes made from 1 April 2023. This approach was designed to minimise the impact on take-home pay while giving members time to adjust to the changes.

Proposed changes to member contributions

The consultation document set out a proposed new member contribution structure for implementation from 1 April 2022, with the second phase implemented on 1 April 2023. This section summarises the changes, views put forward in the consultation and the department’s response.

Summary

As outlined in the consultation document, the 2015 reforms introduced a new scheme where pension is built on a CARE basis. The McCloud remedy, as set out in the consultation response published on GOV.UK, will close further accrual in the 1995/2008 scheme from 1 April 2022 and move all members into the 2015 career average scheme for future service from that point. This will end final salary accrual and stop further career average accrual in the 1995/2008 schemes for practitioners. Therefore, it was proposed that the member contribution structure would be reviewed.  

In a CARE scheme, members accrue the same proportional benefit and there is an argument that everyone should pay the same rate – that is the 9.8% yield. However, the department proposed to retain a tiered contribution approach recognising the mutual intention of the scheme and the continuing desirability of facilitating participation across the whole NHS workforce having regard to potential affordability concerns for lower earners. In addition, many members will have a ‘final salary link’ applied to their accrued 1995/2008 scheme service, meaning that higher earners will continue to derive more value from that service than members who experience steadier pay progression through their career.

It was proposed that the range of earning for each tier would be increased annually, in line with uplifts that are applied to AfC pay bands. This will mitigate the cliff edge issue that sees some members charged a higher contribution rate because a centrally agreed annual pay uplift has put them into a different tier.

It was also proposed that 1 April 2022 would be an appropriate point to start assessing contributions based on a member’s actual pensionable pay rather than their notional whole-time equivalent. The department’s view was that this is fairer for members who work less than full time and accrue pension in a CARE scheme. If implemented, it would mean that many part-time members would pay lower contributions from 1 April 2022.

While retaining tiering remained the department’s preferred approach, it is accepted there is a need to reduce the number and steepness of the tiers, moving over time towards more members paying closer to the 9.8% yield. This is more appropriate in view of the CARE scheme accrual method and means that high earners would pay lower contribution rates, while continuing to subsidise the rates paid by lower earners. Rebalancing the rates will mean that lower earners will be asked to contribute more than they currently do, but still benefitting from a significant subsidy. The department therefore proposed that adjustments to contribution tiers are done gradually to dampen the impact on take home pay for staff and mitigate the risk of staff leaving the scheme on grounds of affordability.

The department believes that the structure set out in Table 1 strikes the right balance and will be phased in over 2 years. For the purpose of determining a member’s contribution tier, their pensionable earnings are rounded down to the nearest whole pound. In practice, the tier thresholds will be increased annually in line with AfC pay awards and therefore the figures will be slightly different for future scheme years. The member contribution structure that was proposed in the consultation document is shown below, with the tier boundaries reflecting the 2021 to 2022 AfC pay points:

Table 1: proposed changes to the current member contribution structure

Current tiers	Pensionable earnings (rounded down to nearest pound)	Current rate (WTE pay)	Rate from 1 Apr 2022 (actual pay)	Rate from 1 April 2023 (actual pay)	Proposed tiers
Tier 1	Up to £13,231	5.0%	5.1%	5.2%	Tier 1
Tier 1	£13,232 to £15,431	5.0%	5.7%	6.5%	Tier 2
Tier 2	£15,432 to £21,478	5.6%	6.1%	6.5%	Tier 2
Tier 3	£21,479 to £22,548	7.1%	6.8%	6.5%	Tier 2
Tier 3	£22,549 to £26,823	7.1%	7.7%	8.3%	Tier 3
Tier 4	£26,824 to £27,779	9.3%	8.8%	8.3%	Tier 3
Tier 4	£27,780 to £42,120	9.3%	9.8%	9.8%	Tier 4
Tier 4	£42,121 to £47,845	9.3%	10.0%	10.7%	Tier 5
Tier 5	£47,846 to £54,763	12.5%	11.6%	10.7%	Tier 5
Tier 5	£54,764 to £70,630	12.5%	12.5%	12.5%	Tier 6
Tier 6	£70,631 to £111,376	13.5%	13.5%	12.5%	Tier 6
Tier 7	£111,377 and above	14.5%	13.5%	12.5%	Tier 6
N/A	Expected yield	9.8%	9.8%	9.8%	N/A

The department believes a cautious pace is appropriate for any future changes to contribution rates. It may be prudent to align future adjustments to valuation cycles and the outcome of cost cap mechanism assessments. The Scheme Advisory Board will be asked to keep the contribution rates under review, monitoring membership and participation data to inform the timing and nature of future adjustments.

Changes to the timing of the reforms

In line with the department’s view that a cautious pace is appropriate and following responses from consultees regarding pressures on take-home pay from 1 April 2022, the department has decided that these changes will be postponed until 1 October 2022.

Feedback from the Scheme Advisory Board was:

The majority view of SAB members is that, although the contribution structure is due for reassessment, making changes at this time is problematic due to the wider economic landscape and challenges in relation to retention and the current exceptional operational pressures, in addition to the McCloud implementation point.

The department has listened to these concerns and considered the take-home pay impact on members.

Consequently, the department has decided to align the changes with the pay review processes for the NHS. To ensure this is after the NHS Pay Review Body’s report, we have postponed the changes detailed in this document until 1 October 2022. This might mitigate the impact on take-home pay for some NHS staff in the short term. By postponing the reforms, the need to reform the member contribution structure is balanced against managing the impact on members’ net income, particularly those who work full time on lower rates of annual pay.

Contribution rate to be based on actual annual rates of pensionable pay

The NHS Pension Scheme currently calculates contribution rates for employed members based on their notional whole-time equivalent (WTE) pensionable earnings, and self-employed members based on their actual annual rates of pensionable earnings.

Notional WTE is currently applied to members who work less than full time, where the member is assigned a contribution rate based on the full-time earnings for the role but pays a percentage of their actual earnings. The consultation document proposed that members’ contribution rates would be based on their actual annual rates of pensionable pay, instead of their notional WTE. Calculating rates based on actual annual rates of pensionable pay is common in other public sector pension schemes.

Respondents to the consultation were broadly supportive of the proposal to use actual annual rates of pensionable pay to determine a member’s contribution tier.

Figure 1: a graph on the responses to the question, ‘Do you agree or disagree that the member contribution rate should be based on actual annual rates of pay instead of members’ notional whole-time equivalent pay?’

Response	Percentage
Agree	72%
Disagree	17%
Don’t know	11%

72% of respondents agreed with the proposal. The comments received were broadly supportive and stated a belief that this would be fairer to part-time staff who have historically paid contributions based on their WTE and would be appropriate moving forwards when all members are accruing benefits in the CARE scheme.

NHS Employers said in their response:

Using actual pensionable pay will specifically be fairer to members that work less than full time, and it is noted that this is more likely to apply to female members of staff. Employers have reported receiving queries from many part-time employees to ask why WTE is used to determine their contribution rate, when their benefits are based on actual earnings.

Some members asked if part-time members would receive a discount on their previous contributions into the scheme, which were based on their WTE. Basing members’ contribution rates on their WTE has historically allowed for equity of treatment between full and part-time members doing the same role in a final salary scheme, as both pay the same rate but get pension proportionate to their length of service. At the point of transfer on 1 April 2015, the vast majority of scheme members had substantial final salary benefits with an active final salary link. The cost of this link and its value to the member will continue to rise over time due to pay progression and is therefore a cost to the scheme. Accordingly, WTE had been retained as an appropriate basis for contributions, to match the prevalence of active final salary benefits in the initial years of the new scheme.

Consequently, it is not appropriate for part-time members to receive a refund on member contributions paid to date, particularly as this would be fed back in through valuation as a cost for future valuation cycles. The proposal to amend the member contribution structure and the mechanism for determining the appropriate rates is prospective only and it is not proposed that any elements would be applied retrospectively.

A minority of members (17%) disagreed with the proposal and some members felt that WTE was an appropriate mechanism to determine members’ contribution rates beyond 1 April 2022. The main reasons for this were arguments that members’ contribution rates should be aligned to their hourly rates of pay and not their annual rates of pay, particularly if members have multiple NHS roles (further views on aggregation of multiple NHS roles are considered below).

A reason why respondents disagreed with the proposal to move away from using WTE to determine a member’s contribution rate is that a part-time member would pay a lower rate of contributions than a full-time colleague doing the same job, despite both members earning 1/54th of their pay as pension. Under the current approach of using WTE to determine the member’s contribution tier, if they work half the amount of hours as their full-time colleague they will pay half as much in pension contributions, but also earn half the amount of pension.  Under the proposals, the part-time member might be in a lower contribution tier and consequently, they would pay less than half the contributions of a full-time member but still end up earning half as much pension. This means that they would earn more pension per pound contributed than a full-time colleague.

For example, one respondent said:

The proposed changes are also fundamentally unfair. Under these proposals a senior consultant who is paid a high hourly rate but only works a few hours per week due to private work, might contribute at a lower rate than a cleaner who works full time. Ultimately the fair way to measure contributions would be to use the pro-rata annual salary to calculate the rate of contribution.

While some respondents felt that it would be fairer to maintain WTE to determine part-time members’ contribution rates, it is important to acknowledge that all members will be building up benefits at the same rate in a CARE scheme. The NHS Pension Scheme does not make any assumptions about members’ employments or income streams that are outside of the NHS and therefore it is only their NHS pensionable pay that is used to calculate their contribution rate. However, from the consultation responses we have received, the majority of respondents agreed that using actual annual rates of pensionable pay would be a fairer method of determining members’ contribution rates.

Linked to this, some of these respondents raised concerns that basing members’ contribution rates on the actual annual rates of pensionable pay instead of their notional WTE would mean a rebalancing of the yield and those respondents felt that it was unfair that full-time members might be required to pay higher contribution rates than under the current contribution structure. This is part of the nature of tiered contribution rates; that members who earn more are asked to pay proportionately more for their pension benefits in order to provide a discount to help those who earn less to also participate in the scheme.

Some of the respondents also raised concerns that the reforms might mean that NHS staff choose to reduce their working hours in order to pay a lower rate of member contributions. For example:

Employers have identified that a potential unintended consequence of this proposal could be that staff reduce their contracted working hours to manage their pensionable pay and ensure that this falls within a particular contribution tier. This is worth highlighting from a workforce planning and capacity perspective, however employers have concluded that this is likely to be a small risk, and one that is difficult to both predict and measure.

As set out in the NHS People Plan document on the NHS England website, the NHS needs to be bold and commit to offering more flexible, varied roles and opportunities for different types of flexible working. NHS staff can ask to work flexibly from day one of their employment. The NHS is committed to ensuring staff have the opportunity to request working patterns that work for them and patient care.

It is worth emphasising that there are many factors that members will consider when determining how many hours they will work. From a pension perspective, members who reduce their hours would also see a commensurate reduction in the pension benefits that they build up and their salary. It is believed that the contribution rate is likely to only be a small factor in members’ decision making and that the positives of making this change outweigh this concern.

Respondents were broadly supportive of the need to aggregate members’ multiple employments in order to determine their contribution rates. For example, one respondent said:

Ideally, staff with multiple posts would also have their pension contribution aligned with their total pay.

However, respondents also recognised the need to put in place robust administration systems in order to allow for aggregation to be applied consistently without being unduly onerous. NHS Employers provided the following feedback:

Employers are highly concerned about the potentially significant impact to their workload that manual interventions would require. […] Employers would therefore fully support the implementation of aggregation being delayed until a time where the process can be fully automated.

The department has listened to these concerns and following further discussion with the NHS Business Services Authority (the NHS Pension Scheme’s administrator), decided that aggregation will be introduced at a later date. While the department remains of the view that aggregation should be introduced in future to help maintain equity and fairness in the scheme, postponing the implementation of aggregation allows more time to ease some of the administrative concerns raised and to develop the solutions and processes required.

The NHS Business Service Authority also raised concerns about how bank staff posts would be treated for the purpose of determining members’ contribution rates. Members who routinely do work on the bank will have their contribution rate based on their previous year’s annual rate of pensionable pay. Guidance will be provided to employers to help them determine the appropriate rate for bank staff in their first year doing bank work, based on an estimate of the likely earnings over the course of the pension scheme year.

The BMA and those who responded using the BMA’s template response raised that they feel annualising their pensionable pay is unfair. In order to determine a member’s tiered contribution rate, that member’s rate of pay is annualised. This is done to ensure that someone who became a member in the middle of the pension year pays contributions at the same rate as someone who started at the beginning of the year. The consultation document did not propose any amendments to how members’ pay is annualised to determine their contribution rate.

Prior to 1 April 2015, annualising did not apply to practitioner members. However, the National Health Service Pension Scheme Regulations 2015 (as amended) mean that all NHS Pension Scheme members are subject to the annualising rule in respect of establishing their tiered employee contribution rate. Minor technical amendments and clarifications were made to how practitioners’ pay is annualised by the National Health Service Pension Schemes, Additional Voluntary Contributions and Injury Benefits (Amendment) Regulations 2019.

While the department understands that respondents are concerned about the application of annualising to practitioners who are members of the NHS Pension Scheme, the department is of the view that annualising remains an appropriate mechanism to determine the contribution rates that members should pay and that it should be applied across the whole NHS Pension Scheme membership, including practitioner members. This means that locum GPs who only work 6 months of the year have their member contribution rate based on what their earnings would have been if they had worked the full year. This is the same as a hospital consultant, or any other member, who only works for 6 months of the year.

Overall, respondents welcomed moving away from notional WTE and instead basing members’ contribution rates on their actual annual rates of pensionable pay and 72% of respondents agreed with the proposal.

Following consultation, the department believes that using actual annual rates of pensionable pay is the right mechanism to determine a member’s contribution rate and therefore this proposal will be implemented from 1 October 2022.

Proposed contribution structure with fewer tiers

The NHS Pension Scheme is one of the best available, providing generous retirement benefits for NHS staff after a lifetime of service. Membership of the Scheme is high, with around 9 in 10 NHS staff actively participating.

The Government Actuary’s Department (GAD) calculates that members can generally expect to receive around £3 to £6 in pension benefits for every £1 contributed. The Scheme increases pension in line with price inflation, providing a guaranteed income in retirement. A band 5 or 6 nurse retiring at 68 with 35 years’ service wholly in the 2015 Scheme can expect an annual pension of around £19,000. A junior doctor with membership wholly in the 2015 Scheme (retiring at 68) can expect a pension of around £62,800 per year if they progress to be a full-time consultant. A similar junior doctor progressing to be a part-time consultant can expect a pension of around £53,700 per year. Junior doctors progressing to be GPs can expect a pension of around £53,700 per year.

In order to build up benefits in the NHS Pension Scheme, members must pay member contributions and their employer must also contribute to the scheme. Employers contribute more towards the cost of the scheme than members, with a current contribution rate of 20.6%, and an additional administration charge of 0.08%.

On average, members are required to pay 9.8% of their salaries in member contributions. However, this is an average across the whole membership and provided the member contribution structure returns the required 9.8% yield, the member contribution rate can be tiered across different earnings thresholds. Currently, employee contributions are tiered according to income, with the rate paid by the lowest earners being 5% and the highest 14.5%, for those earning £111,377 and above.

The cost of membership of the NHS Pension Scheme is therefore borne by both employers and members, although employer contributions are at a higher rate than those of their employees. The large public sector schemes are not directly comparable due to each having different benefit structures and consequently, different yields. The NHS Pension Scheme has a yield of 9.8% and the Teachers’ Pension Scheme is similar, with an average of 9.6% in member contributions. The Local Government Pension Scheme and the Civil Service Pension Scheme have average yields of 6.5% and 5.6%, respectively. When comparing the schemes, it becomes apparent that the NHS Pension Scheme currently has the steepest tiering of member contribution rates and the largest cross-subsidy from high to low earners, with the range of member contributions being from 5% to 14.5%. For the Teachers’ Pension Scheme, the range of member contributions is from 7.4% to 11.7%. Member contributions in the Civil Service Pension Scheme range from 4.6% to 8.05% and for the Local Government Pension Scheme the lowest contribution rate is 5.5% whereas the highest contribution rate is 12.5%.

The consultation document recognised that the argument for tiers is strongest in relation to final salary schemes because higher earners tend to derive more value from their ultimate pension benefits relative to the amount contributed over their career. As more members join, or move into, the 2015 CARE scheme, it is appropriate to keep the member contribution tiering under review.

Members who have transferred to the 2015 CARE scheme from the old scheme will still have their final salary scheme benefits calculated using their pay at retirement (or upon leaving the new scheme) and it is not calculated on the date that they leave the old scheme. This is a valuable benefit to those members who were in the old scheme and will increase the value of a member’s final salary benefits even though no further rights are accrued under the old scheme.

The consultation document sought views on the following proposed member contribution structure, which would be based on actual annual rates of pensionable pay, updated annually based on relevant AfC pay awards, and phased in over 2 years:

Table 2: proposed changes to the current member contribution structure

Note: table 2 is the same as table 1 above, and is repeated here for ease of reference.

Current tiers	Pensionable earnings (rounded down to nearest pound)	Current rate (WTE pay)	Rate from 1 Apr 2022 (actual pay)	Rate from 1 April 2023 (actual pay)	Proposed tiers
Tier 1	Up to £13,231	5.0%	5.1%	5.2%	Tier 1
Tier 1	£13,232 to £15,431	5.0%	5.7%	6.5%	Tier 2
Tier 2	£15,432 to £21,478	5.6%	6.1%	6.5%	Tier 2
Tier 3	£21,479 to £22,548	7.1%	6.8%	6.5%	Tier 2
Tier 3	£22,549 to £26,823	7.1%	7.7%	8.3%	Tier 3
Tier 4	£26,824 to £27,779	9.3%	8.8%	8.3%	Tier 3
Tier 4	£27,780 to £42,120	9.3%	9.8%	9.8%	Tier 4
Tier 4	£42,121 to £47,845	9.3%	10.0%	10.7%	Tier 5
Tier 5	£47,846 to £54,763	12.5%	11.6%	10.7%	Tier 5
Tier 5	£54,764 to £70,630	12.5%	12.5%	12.5%	Tier 6
Tier 6	£70,631 to £111,376	13.5%	13.5%	12.5%	Tier 6
Tier 7	£111,377 and above	14.5%	13.5%	12.5%	Tier 6
N/A	Expected yield	9.8%	9.8%	9.8%	N/A

The majority of the salary thresholds in the proposed structure are linked to the AfC pay bands. Staff working under AfC are the largest single group of NHS staff eligible to join the NHS Pension Scheme and in March 2021 there were over 1.2 million staff in England working on AfC conditions. Consequently, it was proposed that the new contribution structure should be linked to those pay bands.

In Table 2 above, the majority of the tier thresholds are linked to AfC pay bands. The threshold between tiers 2 and 3 (£22,549) is the start of band 4. The threshold between tiers 3 and 4 (£27,780) is the mid-point of band 5. The threshold between tiers 4 and 5 (£42,121) is the mid-point of band 7, The threshold between tiers 5 and 6 (£54,764) is the start of band 8b. Some of the thresholds have been set at band midpoints, for example band 5 is a common entry level grade into the NHS and discounting the rate members pay until they reach the mid-point incentivises members not to opt out when they join the scheme in order to encourage retirement saving as a habit. A discount rate for those earning under £15,432 was also proposed in order to provide a discount rate to part-time members who are unlikely to receive income tax relief on their member contributions, if their NHS pensionable pay is their sole source of income.

The feedback on the proposed contribution structure was very mixed, with 35% agreeing with the proposal and 52% disagreeing. 14% of respondents either didn’t know or didn’t answer the question. Percentages have been rounded to the nearest whole number so might not total 100% when rounded.

Figure 2: a graph on the responses to the question, ‘Do you agree or disagree with the proposed member contribution structure set out in this consultation document?’

Response	Percentage
Agree	35%
Disagree	52%
Don’t know	14%

The reasons for disagreeing with the proposal were varied, with many members saying that the increase in contributions for some members raised affordability concerns and that it was felt that higher earners were the main beneficiaries of reforming the member contribution structure. On the other hand, some respondents put forward that the decrease in contributions for higher earners did not go far enough, that the cross-subsidy between higher and lower earners remained too high or that everyone should pay the same amount (that is, 9.8%). Additionally, respondents raised concerns over the timings of the reforms and suggested that the existing member contribution structure should remain in force.

Some respondents, notably trade unions, raised concerns around the 9.8% yield and stated that they believed it to be too high.

In Lord Hutton’s report on pensions published on GOV.UK, it was put forward that the cost of living longer should not fall to taxpayers and that there needs to be an appropriate balance between what employees and other taxpayers contribute towards public sector pensions. The yield is an appropriate balance between member and employer contributions to the NHS Pension Scheme, with members paying an average of 9.8% and employers currently contributing 20.6% of members’ salaries. While the yield is the highest out of the NHS, teachers’, local government and Civil Service pension schemes, it is only marginally (0.2%) more than the Teachers’ Pension Scheme.

There are other factors that differentiate the schemes, such as the level of benefits accrued and historic differences. For example, the yield is lower in the Civil Service Pension Scheme, but this is accounted for when setting pay levels for civil servants. In essence, salaries are lower than they would otherwise be in recognition of lower pension contributions.

Increasing average member contributions to the current 9.8% yield was the subject of earlier consultations in 2011 and 2013, which can be found online. For further information, the first consultation, now available on the National Archive, was published in December 2011 and the later consultation was published in March 2013 on GOV.UK.

When the yield was reviewed in 2011, there was a strong case for changing public sector pensions. In particular, people are living much longer than previous generations – in 2011, the average 60-year-old was living 10 years longer now than they did in the 1970s. More of people’s lives are now being spent in retirement – between 40 to 45% of adult life compared with around 30% for pensioners in the 1950s.

Consequently, pensions are costing more and as Lord Hutton said in his report, “these costs have generally fallen to the taxpayer”. But taxpayers can’t be expected to bear all the cost of increased longevity. It was viewed to be unfair to expect the private sector to work longer and pay higher taxes so that the public sector can retire earlier and receive disproportionately better pensions.

Therefore, there needed to be a fairer balance between what employees pay and what other taxpayers contribute towards a public service pension and the yield for the NHS Pension Scheme was raised to 9.8%.

Many respondents raised issues of affordability for members who would see an increase in their contributions, as well as concerns about the risk of opt-outs from the NHS Pension Scheme. The Scheme Advisory Board said in their response:

The Scheme was established as a mutual scheme and this should remain a key consideration when determining members’ contribution rates. Affordability for all members should be a paramount objective, contribution structures should aim to minimise the extent to which any NHS worker feels unable to join the Scheme due to the impact of contributions on their take-home pay.

Affordability has been considered when developing the proposed member contribution structure and while some members would see increases under the proposal, it is important to note that over half of members (54%) would receive a discount on the average contribution of 9.8%. This increases the value of pension savings for those members, in an already generous scheme. Members’ employers also contribute to their pension benefits leading to a generous pension benefit. 

For example, a healthcare assistant at the top of AfC band 2 with pensionable earnings of £19,918 would have a new contribution rate of 6.5% from April 2023. After allowing for income tax relief, this contribution would cost the member £1,036 over the year, which is over £900 less than it would cost if they paid the 12.5% new top tier. The employer will also contribute £4,103 over the year to the NHS Pension Scheme for the member. In the 2015 CARE scheme, the member will earn a pension of £369 per year over the year, which could be worth over £7,000 if the pension was paid for 20 years (ignoring discounting and indexation and before income tax).

Similarly, a nurse at the top of AfC band 5 with pensionable earnings of £31,534 would have a new contribution rate of 6.5% from April 2023, which would cost £2,472 allowing for income tax relief. The employer will also contribute £6,496 and the member will earn a pension of £584 per year over the year, which could be worth over £11,000. On the other hand, many consultation responses were received that argued that all members should pay the same contribution rate. Given that the yield is 9.8% this means that all members would pay 9.8%, regardless of their income. For example, the BMA said in their response:

Given that all scheme members will be moved to a career averaged revalued earnings (CARE) scheme from 1 April 2022, this eradicates any justification for tiered employee pension contributions, let alone the steep tiering proposed.

The British Dental Association (BDA) put forward a similar comment in their response:

With the move away from links with final salary, we believe we should move from a tiered contribution structure to a flat rate with all members contributing no more than 9.8%.

In the consultation response, it was set out that the rationale for tiering is strongest in final salary schemes. As part of stakeholder consultation with the Scheme Advisory Board, a flat structure of 9.8% was considered. However, there remains justifications to keep tiering as a design feature of the member contribution structure, notably to maintain the mutuality of the scheme and to protect affordability for lower earning members of the scheme. Additionally, members who have transferred to the 2015 CARE scheme from the old scheme will still have final salary scheme benefits that are calculated using pensionable pay at retirement (that is, a final salary link). This is a valuable benefit to those members who were in the old scheme and will increase the value of a member’s final salary benefits even though no further rights are accrued under the old scheme.

Consequently, it was suggested by a minority of respondents, including NHS Employers, that there could be 2 different member contribution structures, one for members who have final salary scheme benefits and one for those who do not. The NHS Pension Scheme has historically had one member contribution structure for all members, even when split across different schemes. Introducing 2 member contribution structures would be increase administrative difficulty and would add complexity into the NHS Pension Scheme. It is believed to be preferable to maintain one single structure and keep member contributions under review as members build up CARE benefits and fewer members have a final salary link.

The prevalence of the final salary link for many members is also a justification for maintaining some tiering in the NHS Pension Scheme. While there were responses that proposed the contribution rate should be 9.8% for all members, there were also a high number of responses that were in favour of tiering. Many of the responses that did wish to move to a flat structure with all members paying the same contribution rate recognised that progress should not be too swift, in order to protect lower earning members of staff.

This was addressed in NHS Employers’ response, which said:

Employers understand the rationale for flattening the member contribution structure, and would support the structure being gradually flattened over time to a position where a significant proportion of the membership is paying 9.8 percent. However, it is the view of employers that the proposed new structure moves too quickly towards that position, and employers are highly concerned about the disproportionate impact that this would have on the lowest earning members of staff.

Finally, a minority of respondents also proposed that there should be more tiers than the current tiered contribution structure, in order to minimise the impact of members of paying higher rates. One individual respondent said:

Points worthy of some consideration would be to broaden a little the number of bands – at present if a staff member jumps up one band due to an inflationary rise they can be significantly worse off (for example, a £1 increase taking from 9.3% to 12.5% could mean an extra £1,531 member contribution or 3.2%!). This is a major issue as the increase is across the entire income. Splitting the bands a little would reduce this pain.

The number of bands was considered as part of the stakeholder engagement with the Scheme Advisory Board. As explained in the consultation document, the Scheme Advisory Board were clear that they wish to see a reduction in the number of tiers. However, the department recognised that too few tiers could still lead to issues when members move through the contribution tiers. This is why it was proposed that the number of tiers would move from 7 to 6, instead of even fewer tiers.  

Having reviewed all the consultation responses, the department is clear that this is an area of tension between respondents who wish to see swifter progress to 9.8% and those who wish to see slower progress, or retain the current tiers. Given the opposite views expressed in consultation responses, it is clear that there isn’t a proposal where all respondents would be able to agree.

The department has listened to the responses which raise concerns around affordability and takes these very seriously. It remains the case that the NHS Pension Scheme is an incredibly generous scheme which provides value for money and is a worthwhile investment for many members.

The department feels that the proposed member contribution structure strikes the appropriate balance between maintaining the affordability of the scheme and ensuring that the member contribution structure better reflects the nature of accrual in a CARE scheme. While the current member contribution structure will be kept in place for a short period, the new member contribution structure will come into force on 1 October 2022. Once in place, the member contribution structure will continue to be kept under review and the impacts of the changes will be monitored through reviewing levels of opt-outs and other pension data.

Increasing tier boundaries in line with annual AfC pay awards

The current contribution tiers have been frozen since 2015 and have not risen in line with inflation or general pay awards. This has occasionally led to small increases in pay causing a net reduction in take-home pay as the increase in contributions from moving into a higher tier outweighs the pay increase. Increasing the contribution tier boundaries in line with annual AfC pay awards would maintain the yield and reduces the possibility for a small number of members to have a take-home pay reduction as a result of crossing tiers due solely to nationally awarded AfC pay increase.

Sixty-seven per cent of respondents agreed with this proposal, whereas 22% disagreed and 11% either didn’t know or didn’t express a view on this design theme.

Figure 3: a graph on the responses to the question, ‘Do you agree or disagree that the thresholds for the member contribution tiers should be increased in line with AfC pay awards?’

Response	Percentage
Agree	67%
Disagree	22%
Don’t know	11%

One of the concerns raised by respondents was that not all NHS Pension Scheme members are on AfC pay scales and they therefore questioned the appropriateness of using AfC pay awards as the mechanism for inflation. Members of the NHS Pension Scheme hold a wide range of roles and types of employment contracts and it is acknowledged that not all members will be paid on AfC pay grades. Additionally, there are different processes for determining the pay award for different parts of the NHS workforce.

NHS Providers highlighted this point in their response and said:

We agree with the approach of aligning contribution tier increases to annual AfC awards specifically – rather than any other pay structure or calculation measure – given the considerable majority of staff in the NHS are employed through this structure. While this is not the case for medical staff and very senior managers, we appreciate the need for a consistent approach across all staff groups. We believe this method of alignment will be easier for trust leaders – particularly those working in payroll or HR teams – to engage with and explain to their staff than alternative approaches and support the principle expressed by DHSC that “it is important that the tiers are kept consistent for all members of the workforce”.

As discussed in the consultation document, it is important that the tiers are kept consistent for all members of the workforce and therefore, if the tier boundaries are uprated, one consistent mechanism should be chosen. It was proposed that the tier boundaries should be uprated by the same amount as the AfC pay award as that is the pay award that applies to the largest cohort of staff.

Some respondents did not understand why it was the AfC pay award that had been chosen – for example, the Hospital Consultants and Specialists Association said:

We are unclear as to why the awards would be adjusted specifically in line with AfC, when many scheme members, including all of our members, are on different pay spines.  It is worth noting that a completely flat contribution rate would remove any disadvantage caused by a pay rise as this would mean simplicity and give members the ability to plan.

AfC increases have been chosen because staff working under AfC are the largest single group of NHS staff eligible to join the NHS Pension Scheme. This proposed design feature would mean that the largest cohort of staff (those paid on AfC pay scales) would not see an increase to their contribution tier in future scheme years due solely to an increase to their salary which reflects any nationally agreed AfC pay award. However, if there are other movements to their salary, for example, promotion, progression or changes to their working pattern then they may see their rate increase or decrease accordingly.

Additionally, any members who receive an annual pay award that is less than the AfC pay award are unlikely to see an increase in their contribution rate, provided that is the sole change to their pensionable pay. Members whose salaries are already towards the top of their contribution tier and their pensionable pay increases by more than the annual AfC pay award, might receive an increase in their contribution tier and subsequent member contributions. It is expected that members will pay more contributions as their pensionable pay increases and is a deliberate design feature of the scheme, in order to provide a discount to lower earning members of the scheme.

Some members were concerned that this would introduce complexity into the NHS Pension Scheme as well as aligning with the pay review process. For example, the Royal College of Nursing (RCN) said in their response:

Our members report finding themselves in pension arrears because of the Agenda for Change 2021-22 pay award as it was delayed and although increasing the contribution tiers in line with future awards will go some way to addressing this problem, there will always be some members who face cliff edges and a worse financial position as a result.

Also, AfC pay awards are routinely delayed and backdated. Any increase in line with AfC should occur at the date of payment not the 1 April by default.

The proposal to use previous years’ pensionable pay for the majority of members should ease some of these concerns as it means that members will not see their pension contributions increase due to increases in pay in line with the AfC pay award. However, members will have their pension rates reviewed if there are other changes to their annual rate of pensionable pay, for example a promotion or a change in hours.

It is noted that the regulatory timetable for laying amending regulations to update the member contribution structure with the new thresholds would be challenging. An employer highlighted this in their response, stating:

The proposal to have 2 separate rate tables, with one being changed as a result of the Agenda for Change (AfC) pay award, is overly complex and is not seen anywhere else in the public sector as far as we know. We are familiar with dealing with annual changes to pension tiers for the Local Government Pension Scheme (LGPS) and the Teachers’ Pension Scheme (TPS); in both cases the new tiers are increased in line with the RPI in advance of April. We understand that other public sector pension schemes operate on a similar basis. We do not see any reason why the NHS scheme should be different in this regard.

It is the department’s policy to set out the thresholds in regulations and therefore they must be updated year on year. In order to streamline this process, the department proposes to put the amending regulations out to a short consultation in order to enact new legislation as swiftly as possible after the pay award has been announced. However, this administrative difficulty is outweighed by the benefits uplifting the thresholds would have on members.

The consultation responses drew out that there are obvious benefits for members in uplifting the tier thresholds every year and the majority of respondents agreed that linking the thresholds to the AfC pay bands was the correct approach. Consequently, the department will implement this proposal from 1 October 2022.

Phasing in the new contribution rates

The consultation document outlined that the proposal would be phased in over 2 years, with the first increase in member contributions to be implemented on 1 April 2022 and the final structure to be implemented on 1 April 2023.

Table 3, below, sets out the phasing that was proposed in the consultation document:

Table 3: proposed changes to the current member contribution structure

Note: table 3 is the same as table 1 above, and is repeated here for ease of reference.

Current tiers	Pensionable earnings (rounded down to nearest pound)	Current rate (WTE pay)	Rate from 1 Apr 2022 (actual pay)	Rate from 1 April 2023 (actual pay)	Proposed tiers
Tier 1	Up to £13,231	5.0%	5.1%	5.2%	Tier 1
Tier 1	£13,232 to £15,431	5.0%	5.7%	6.5%	Tier 2
Tier 2	£15,432 to £21,478	5.6%	6.1%	6.5%	Tier 2
Tier 3	£21,479 to £22,548	7.1%	6.8%	6.5%	Tier 2
Tier 3	£22,549 to £26,823	7.1%	7.7%	8.3%	Tier 3
Tier 4	£26,824 to £27,779	9.3%	8.8%	8.3%	Tier 3
Tier 4	£27,780 to £42,120	9.3%	9.8%	9.8%	Tier 4
Tier 4	£42,121 to £47,845	9.3%	10.0%	10.7%	Tier 5
Tier 5	£47,846 to £54,763	12.5%	11.6%	10.7%	Tier 5
Tier 5	£54,764 to £70,630	12.5%	12.5%	12.5%	Tier 6
Tier 6	£70,631 to £111,376	13.5%	13.5%	12.5%	Tier 6
Tier 7	£111,377 and above	14.5%	13.5%	12.5%	Tier 6
N/A	Expected yield	9.8%	9.8%	9.8%	N/A

Responses to this section of the consultation document were understandably mixed, with some respondents agreeing with the proposal to phase over 2 years, some members wanting to see quicker change (and, consequently, no phasing) and others disagreeing with the phasing proposal because they believed that no changes should be made to the current contribution structure. In summary, 45% of respondents agreed with the proposal, 43% disagreed and 13% either did not know or did not answer this question.

Figure 4: a graph on the responses to the question, ‘Do you agree or disagree that the proposed member contribution structure should be phased over 2 years?’

Response	Percentage
Agree	45%
Disagree	43%
Don’t know	13%

Some of the respondents who wished to see the new member contribution structure brought in straight away wanted to see a faster pace of change in order to reduce the rates paid by higher earners, as quickly as possible. There were also issues raised about retaining these high earners, both in the workforce and in the pension scheme, and that reducing their rates immediately would assist with such retention. Other respondents wanted to see the changes brought in straight away because they were concerned that phasing in the changes would lead to confusion for NHS Pension Scheme members, who would see their rates increase or decrease for 2 successive years before remaining static the following year. These respondents usually showed a preference for the new member contribution structure to come into force in its entirety on 1 April 2022, although some did request that it was postponed for a future date.

For example, NHS Employers provided in their response:

There are multiple arguments for introducing all of the changes from 1 April 2022:

– the NHS Pension Scheme is complex and often difficult for members to understand. There is merit in only needing to communicate these changes once, rather than in consecutive years

– introducing the new structure in full from 1 April 2022 would provide a longer period of stability for members

– if changes are phased in, staff are likely to see this as acceptance that the changes are negative for all members, which could reduce the perceived value of the scheme

– phasing in the new structure risks losing some of the positive messages associated with the changes. For example, many part-time employees will see their rate reduce in 2022 as this will be based on their actual pensionable pay. However, if their rate consequently increases in 2023 as a result of phasing, it is unlikely that the change to actual pensionable pay will continue to be seen as a benefit

– phasing in the new structure would impact on employers’ workload locally through additional administrative requirements and a predicted increase in queries. However, although this is an important consideration, employers would not push for this to be a key factor in this decision

Clarity for members is very important when considering changes to the NHS Pension Scheme. Pensions and their design can be a complex area, particularly for the NHS Pension Scheme which has a large membership with wide variety of different members.

However, as highlighted in some of the consultation responses, the new member contribution structure might negatively impact some members’ take-home pay as they see their member contributions increase. While the NHS Pension Scheme is seeking to move to a flatter contribution structure, it is important to be cognisant of the practical impact that these changes will have on members, including when there are other factors affecting take-home pay even if they are not unique to the NHS, such as the Health and Social Care levy. Consideration should be given to the cumulative effect of these changes, particularly if they were to all happen at the same time.

Additionally, some respondents requested that the phasing take place over a longer timeframe in order to minimise the impact on take-home pay in any one year.

For example, UNISON stated in their response:

UNISON believes further consideration should be given to a longer phasing period as the proposed 2 years still results in significant increases, especially for those in the lower tiers.

Phasing over a longer period was considered prior to going out to public consultation. However, due to the proposal to move away from using notional WTE to calculate members’ contribution, this has not been proposed as the phasing in year one would be similar no matter how long the phasing period would be. This is due to the need to rebalance the contribution tiers in order to ensure that the required yield is maintained having moved to using actual annual rates of pensionable pay.

There is clearly a need to balance clarity for members and a timely move to the new structure with minimising the impact of the new member contribution structure on take-home pay on 1 April 2022. The feedback from the consultation has been helpful and the different options have been carefully considered. Consequently, the department has decided to delay the implementation of the new member contribution structure until 1 October 2022. This means that any increases to members contribution rates will be better timed and dampen the impact on take-home pay. Additionally, given that phasing the new member contribution in slowly would protect scheme affordability for some scheme members and minimise the risks to take-home pay of large increases to member contribution rates, it has been decided that the new member contribution structure will be phased in 2 steps, as set out in the consultation document.

Proposed draft amending regulations

To apply the proposed changes, the department will need to amend scheme rules. The rules of the NHS Pension Schemes are set out in regulations, which is a form of secondary legislation. Those rules can be amended or replaced by new regulations drawn up in accordance with the powers and requirements of the Public Service Pensions Act 2013 and the Superannuation Act 1972 as relevant.

The consultation document requested feedback on the draft amending regulations and whether the draft amending regulations met the policy objectives set out in the consultation document. The draft amending regulations were proposed in order to implement:

• the new tiered contribution rates from 1 April 2022 that correspond to the first year of the proposed phased introduction

• the assessment of a tiered contribution rate for part-time employed members based on their actual annual rate of pay rather than the notional whole-time equivalent

• a mechanism in regulations that uses 2 contribution rate tables to allow:

  • members who have their contribution rate based on their previous year’s pensionable earnings to use the contribution rates before any increase to tier boundaries is applied

  • members who have their contribution rate based on current pensionable earnings to use contribution rates that have increased in line with the AfC pay award for that scheme year (which will be updated by amendment regulations following the AfC award announcement)

The consultation document asked whether respondents agreed or disagreed that the proposed draft amending regulations deliver the policy objectives of implementing the first phase of changes to the tiered contribution rate structure and the assessment of a tiered rate using actual annual rate of pensionable pay for part-time members rather than notional whole-time equivalent.

Fifty-six per cent of respondents agreed that the draft amending regulations would deliver the policy whereas 17% disagreed and 27% either didn’t know or didn’t answer that question.

Figure 5: a graph on the responses to the question, ‘Do you agree or disagree that the proposed draft amending regulations deliver the policy objectives of implementing the first phase of changes to the tiered contribution rate structure and the assessment of a tiered rate using actual annual rate of pensionable pay for part-time members rather than notional whole-time equivalent?’

Response	Percentage
Agree	56%
Disagree	17%
Don’t know	27%

Some respondents were concerned about the complexity of the draft amending regulations, for example the BMA said:

The draft regulations highlight the level of complexity that will be introduced by retaining a tiered structure and moving to basing contributions on actual pay. All of these difficulties will be avoided by having a flat contribution structure.

However, the draft regulations do seem to deliver the desired policy objectives.

Respondents did not find that there were any issues with the draft amending regulations, although some disagreed with the intention behind the regulations. While these responses did not directly answer the question asked here, they have been considered as responses to the consultation document as a whole.

Additionally, some respondents found the question to be complex and difficult to understand. This feedback will be considered for future consultations in order to ensure that the consultation questions are easy to understand.

Finally, the draft regulations will be amended to reflect the changes in policy described in this consultation response, in particular that the new member contribution structure will be postponed until 1 October 2022 and that aggregation will be delayed while we work with employers to develop a proportionate mechanism to deliver this important principle. These amendments will be included in the final regulations that will be laid before Parliament.

Equality impact assessment

The consultation document included an equality impact assessment in order to consider the impact of the proposals in the context of the public sector equality duty. The public sector equality duty is set out in section 149 of the Equality Act 2010 and requires public authorities, in the exercise of their functions, to have due regard to the need to:

• eliminate unlawful discrimination, harassment and victimisation and other conduct prohibited by the 2010 Act

• advance equality of opportunity between people who share a protected characteristic and those who do not

• foster good relations between people who share a protected characteristic and those who do not

This involves having due regard, in particular, to the need to:

(a) remove or minimise disadvantages suffered by people due to their protected characteristics

(b) take steps to meet the needs of people from protected groups where these are different from the needs of other people

The equality duty covers the 9 protected characteristics:

• age
• disability
• gender reassignment
• marriage and civil partnership
• pregnancy and maternity
• race
• religion or belief
• sex (gender)
• sexual orientation

The department considered the impact of the proposals in context of this duty and invited respondents to help refine this initial analysis by contributing further perspectives or identifying where there might be equality impacts to consider.

Some respondents expressed disappointment that the equality impact assessment contained initial analysis by the department. UNISON stated in their response:

The DHSC are asking for responses to this consultation based on an initial equality impact assessment (EQIA). It is UNISON’s view, that a full EQIA should be provided alongside the consultation so any equality issues can be properly considered. Carrying out this important duty following the decision seems ineffective.

It is worth noting that the equality impact assessment in the consultation document was based on the department’s initial analysis. The public sector equality duty is an ongoing duty, and it was the department’s intention to continue to keep the equality impact assessment under review. The department is open-minded about any further equality considerations that arise, including those highlighted in the consultation document. Consequently, the department did not see the equality impact assessment included in the consultation document as an exhaustive or finalised assessment of all equality considerations and will continue to keep it under review, in line with the public sector equality duty. The decision to reform member contributions should be taken with the best possible insight and therefore refining equality analysis after consultation is an important part of the public sector equality duty and does not render the process ineffective, but rather strengthens it.

Some respondents used this question to set out that they felt that a flat structure (that is, where all members are charged 9.8%) would be the fairest option. For example, the BDA said:

We believe that a flat contribution structure would be fairest. Such a structure would, when tax costs – which can be substantial – are taken into account, still lead to higher earning health professionals paying more towards each £1 of their pension than their colleagues at lower pay rates.

The rationale for maintaining tiering has been set out in the consultation document and this consultation response. The NHS Pension Scheme is a mutual scheme and protecting the affordability of the NHS Pension Scheme for all members, including those who are lower earners, is an important consideration when reforming the member contribution structure.

On the other hand, many respondents raised concerns about increases in contributions for lower and middle-earning members of the NHS Pension Scheme. The RCN said in their response:

Although many of our members agree those at the bottom of the structure should be subsidised as they are the lowest earners, they don’t accept those at the top should experience a reduction.

Our members on bands 5 to 7 will experience the largest financial detriment and they are also concerned the pay gap between the bands is now ever increasing.

Finally, it should be noted, there is a higher proportion of men in the highest bands who will be advantaged by this proposal.

We would urge the government to continually review the equality impact of these regulations if implemented.

Additionally, individuals raised concerns about the impact on members who will pay increased member contributions as a result of the new member contribution structure. One respondent said:

The increase in contribution will have a disproportionate impact on black, Asian and minority ethnic staff who are approximately 50% of our workforce and make up 64% of our staff in band 5 and below.

The proposed member contribution structure means that many members (54% of all members) will pay less than the average contribution rate of 9.8%. This group is proportionately more likely to also be members of groups with protected characteristics, as set out in the consultation document. Any impact on these groups will continue to be kept under review and opt-out rates will be monitored.

In particular, members who are paid at the bottom of AfC band 5 (£25,655) will pay member contributions at a rate of 7.7% from 1 April 2022 and 8.3% from 1 April 2023. This is a 2.1% and 1.5% reduction against the average rate, respectively, and will therefore provide members at the bottom of band 5 with a discount. The discount is even greater for those whose annual pay equates to AfC bands 1 to 4.

Data used for the 2020 NHS Workforce Race Equality Standard, published on the NHS England website, shows that a significant proportion of staff working in the lower AfC bands are from ethnic minorities. In particular, the data shows that 27.5% of staff in AfC band 5 are from ethnic minorities, compared to an average of 21% across all AfC staff and including very senior managers (which has a lower rate of 6.8%). While members in these bands are more likely to receive an increase in the amount of member contributions that they pay compared to previous years, they will still receive a valuable discount on the average amount of member contributions required from the membership as a whole through the use of tiering in the NHS Pension Scheme.

Many members used this section to welcome the changes to calculating members’ rates based on their actual annual rates of pensionable pay, instead of their notional whole-time equivalent. However, a minority of members felt that the changes did not go far enough. For example, the Association of Anaesthetists said:

The failure to use actual pay rather than notional full-time salary has gone on for several years. It is inappropriate in a CARE scheme. While the McCloud judgment may allow some undoing of this now, if anyone affected by this chooses to stay in the 2015 scheme for the years 2015 to 2022 it should be backdated and money refunded.

As explained in the consultation document and this consultation response, the use of notional whole-time equivalent has been appropriate for the NHS Pension Scheme in the past as a fair way to calculate the appropriate contribution rate for members, particularly (but not solely because of) the inclusion of final-salary benefits for many members of the NHS Pension Scheme. While the department is now proposing that a different mechanism is used to calculate members’ contribution rates, this does not mean that notional WTE was inherently unfair or discriminatory. Consequently, it is not proposed that members will be offered refunds on the contributions that they made prior to 31 March 2022.

Another individual asked:

Does the decrease in part-time workers contributions impact on the amount the employer pays into their pension pot or does it not have any impact at all (Depending on the answer to this there may be equality issues if part-time workers pension pots are now reduced further)?

All members will build up benefits at the same rate in the 2015 Scheme and the mechanism used to determine members’ contribution rates does not affect the benefits that they build up. The proposals in the consultation document only related to member contributions and did not propose any amendments to the current employer contribution rate. The employer contribution rate will remain 20.6% (plus a 0.08% administration charge) regardless of the amount that the member earns.

One respondent was concerned about the impact of the proposals on people with disabilities. In their response, they stated:

It disadvantages disabled people who work full time like myself. You’ve acknowledged that it causes disadvantage to full-time disabled people but have not cared because ‘most people disabled people work part time’ and it benefits them. […] Do you not want disabled people working FT?

The department does not believe that the proposals disadvantage disabled people who work full time. Instead, the proposals seek to rebalance the rates so that they are more equitable for all NHS Pension Scheme members, across a range of possible working patterns. It was acknowledged in the consultation document that there is some data to suggest that people with disabilities are proportionately more likely to work part time than people who do not report having a disability. Data published on the Office of National Statistics (ONS) website on disability and employment shows that with 34.1% of working disabled people work part time in comparison with 23.1% of non-disabled people. 

However, this does not mean that the proposals disadvantage people with disabilities who work full time, who will build up benefits in accordance with their full-time salaries (and also have their contribution rates based on their actual annual rates of pensionable pay). The department has not seen any evidence of this disadvantaging people with disabilities who choose to work full time. However, the department will keep the equality analysis under review and reassess this position if any evidence becomes available.

Some respondents requested more data on the impact the reforms would have on part-time members.

In the consultation response, it was set out that around 30% of members would see their contribution rate reduced due to changing how part-time members have their contribution rate allocated. It is difficult to provide up to date analysis due to the likelihood that members might change their working hours. Additionally, the NHS is a very varied workforce and even within officer membership, only 16% of all officer members receive pay equal to an AfC spine point. However, if data from 2019 was replicated in 2022, around 400,000 part-time staff would be better off under the new member contribution structure.

The exact circumstances for each individual member will vary and whether they pay less contributions or more (because they remain in the same tier and that tiered rate increases) will depend on a number of factors, including how close they are to the tier thresholds. For example, a member working part time at 70% of a £40,000 full-time equivalent role would currently pay 9.3% but will fall into the 9.8% tier based on their actual pay. However, a member working 60% of £40,000 FTE would drop into the 8.3% tier under the new structure as a result of determining the contribution rate based on their actual pensionable pay and therefore pay less.

Table 4 provides some worked examples to demonstrate what the impact would be on the gross contribution payable (before allowing for any income tax relief on contributions) for a number of members across a range of full-time pensionable pay amounts and part-time proportions. A negative amount means that the new contribution would be lower than the current contribution. The earnings levels shown are to assist member understanding rather than to represent specific roles.

Table 4: difference between new contribution amount and current contribution amount for different proportions of a range of full-time pensionable earnings

FTE pensionable earnings	10%	20%	30%	40%	50%	60%	70%	80%	90%	100%
£20,000	-£8	-£16	-£24	-£32	-£40	-£48	£126	£144	£162	£180
£30,000	-£123	-£246	-£369	-£492	-£420	-£504	-£588	-£240	-£270	£150
£40,000	-£164	-£328	-£492	-£448	-£560	-£240	£140	£160	£180	£200
£50,000	-£365	-£730	-£900	-£1,200	-£1,050	-£810	-£945	-£1,080	-£810	-£900
£60,000	-£438	-£876	-£1,080	-£1,008	-£810	-£972	-£1,134	-£864	-£972	£0

This demonstrates the above examples that a member working 70% of £40,000 full-time equivalent would pay a higher contribution in the new structure than currently, whereas working 60% would mean paying a lower contribution under the new member contribution structure.

Further equality impacts have been considered as part of the decision to maintain the current member contribution structure and postpone the implementation of the reforms until 1 October 2022. While the department believes that there are clear equality and policy objectives that can be achieved by moving to the new member contribution structure in a timely manner, it is important that these considerations are balanced against real-life experiences for members. Therefore, the department considers it to be justifiable to postpone the implementation of these changes for a short period of 6 months in order to mitigate the impact of the effect these changes will have on the take-home pay of some staff members.

Respondents raised concerns about the complexity of pensions policy and the language used in the consultation document. While pensions policy is a complex area of policy, the department has tried to explain the proposals in a way that is as easy to understand as possible. However, it is clear that some respondents felt that improvements could be made, and the department will take on board this feedback for future consultations.

Some respondents also used this section to raise issues that were not wholly related to equality issues, such as concerns about recruitment and retention, administrative concerns and tax issues. While they were not necessarily relevant to this question, they have been considered in the wider context of the consultation as a whole.

Conclusion

The department is grateful for the responses received at consultation stage, which have helped test the proposals and provided valuable insight from a wide cross-section of the NHS Pension Scheme membership and interested stakeholders.

The department has consulted those who appear to be likely affected by the proposed changes to regulations with a view of reaching agreement. Overall, the vast majority of respondents agreed with the proposals, and that where there was disagreement, this was largely due to competing interests of different parts of the diverse workforce, and the department has sought to adopt an approach which is proportionate to all of these views.

Following consultation, the department intends to proceed with the proposals to:

• use actual annual rates of pensionable pay to determine members’ contribution rates, instead of members’ notional whole-time equivalent pay

• change the member contribution structure to the structure that was proposed by the consultation document

• increase the thresholds within the member contribution structure in line with annual AfC pay awards

• phase in the new member contribution structure, with the first phase to be implemented on 1 October 2022

Following consultation, the department has determined that 3 changes are required to the proposals:

• first, that aggregating multiple employments should be done at a later date in order to ensure that the implementation is administratively robust
• second, that the position in relation to new bank posts needed to be clarified and that employers will determine the rate of contributions that bank staff will pay in their first year, based on an estimate of their earnings
• finally, that the changes will be postponed and the regulations, including amendments to give effect to the changes to the proposals, will be laid before Parliament and come into force on 1 October 2022

The Business Services Authority, as the administrator for the NHS Pension Scheme, will write to all members informing them of the changes in advance of the changes coming into force.

The reforms set out in this consultation document will apply from 1 October 2022.