NHS Pension Scheme: proposed uplifts to the member contribution tier thresholds – consultation response
Updated 8 September 2022
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This publication is available at https://www.gov.uk/government/consultations/nhs-pension-scheme-proposed-uplifts-to-the-member-contribution-tier-thresholds/outcome/6b182efb-f433-4636-8eee-0654f271aed7
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.
Earlier this year, the Department of Health and Social Care (DHSC) consulted on a proposal to uplift the pensionable earnings thresholds that determine a member’s contribution rate in accordance with the Agenda for Change (AfC) pay increase.
That consultation set out that increasing the contribution tier boundaries in line with annual AfC pay awards would reduce the possibility for a small number of members to have their take-home pay reduce as a result of crossing into a higher contribution tier solely because of an increase to the AfC pay bands.
While there are different processes for determining the pay award for different parts of the NHS workforce, it is important that the contribution tiers are consistent for all members of the NHS Pension Scheme. Consequently, the consultation proposed that the pensionable earnings thresholds in the contribution tiers would be increased each year in line with the AfC pay award because this is the pay award that applies to the highest number of NHS Pension Scheme members.
The proposal received support during the consultation process with 67% of respondents agreeing that the thresholds should be uplifted in accordance with the AfC pay award.
It is DHSC’s policy to set out the thresholds in regulations and therefore they must be updated year on year. In order to streamline this process, DHSC proposed to put the draft amending regulations out to a short consultation in order to enact new legislation as swiftly as possible after the AfC pay award has been announced.
This consultation therefore set out proposed uplifts to the contribution tier thresholds in line with the AfC pay award announced in July 2022 with a view to reaching agreement with those who appear likely to be affected by the changes. This consultation was accompanied by draft amending regulations to give effect to these changes.
Consultation process
The proposals and draft regulations were subject to public consultation, which began on 19 July 2022 and ended on 12 August 2022. A consultation document describing the proposals and draft regulations was published at NHS Pension Scheme: proposed uplifts to the member contribution tier thresholds from 1 October 2022 alongside an online consultation platform, with responses invited through the consultation platform or by email.
Prior to publication of the consultation document, DHSC worked with the NHS Pension Scheme Advisory Board to review the member contribution structure with a view to reaching agreement. 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.
Proposals were then put out to public consultation on 15 October 2021, and DHSC confirmed that the pensionable earnings thresholds in the member contribution structure would be uplifted annually by the AfC pay award.
This consultation set out the proposed increases to the pensionable earnings thresholds for 2022, in line with the 2022 AfC pay award for England. The scheme advisory board was formally notified of the consultation.
DHSC welcomed any comments or views on the proposals and draft regulations. Specifically, DHSC asked the following 2 questions:
- Do you agree or disagree that the proposed pensionable earnings thresholds in the member contribution structure set out in table 2 of the consultation page correctly reflect the AfC pay award for England?
- Do you agree or disagree that the draft amending regulations give effect to the policy intentions set out in this document?
A total of 58 responses were received, with 53 responses received through the consultation platform and 5 responses received by email. The responses came from individuals, trade unions, employers and other organisations, including the:
- British Dental Association
- British Medical Association
- NHS Business Services Authority
- Royal College of Nursing
- NHS Pension Scheme Advisory Board
Some respondents took the opportunity to express views on topics related to the NHS Pension Scheme that were outside of the scope of this consultation.
Summary of proposals
This section briefly summarises the proposals as outlined in the consultation document.
1. Uplifting the pensionable earnings thresholds in the member contribution structure
In response to a previous public consultation on changes to member contributions, DHSC confirmed that the pensionable earnings thresholds in the member contribution structure will be uplifted annually in line with the AfC pay award. These annual uplifts will reduce the likelihood of members paying higher contribution rates due solely to nationally agreed pay awards.
This consultation set out the pensionable earnings thresholds to apply on 1 October 2022, which have been uplifted in accordance with the AfC pay award in England.
2. Correction to pension eligibility
The consultation proposed a technical amendment to correct an omission from previous regulations to include in the National Health Service Pension Scheme (Transitional and Consequential Provisions) Regulations 2015 (the ‘transitional regulations’) a group of pensioners who receive a tier 2 ill-health pension.
This will permit such pensioners to join the 2015 scheme where the first anniversary of their return to NHS employment falls on or after 1 April 2022. This provision will have retrospective effect from 1 April 2022.
Proposed increases to the member contribution thresholds
The consultation document set out the proposed thresholds in the member contribution structure for implementation from 1 October 2022, following the AfC pay award. This section summarises the changes, views put forward in the consultation and DHSC’s response.
Summary
The earlier consultation on member contribution changes explained that, to annually increase the pensionable earnings thresholds in line with the AfC pay award, further changes need to be made to the pensionable earnings thresholds in the regulations. See detail of the pay award.
The pensionable earnings thresholds in the member contribution structure will be annually uplifted by the AfC pay award because staff working under AfC are the largest single group of NHS staff eligible to join the NHS Pension Scheme. In March 2021, there were over 1.2 million staff in England working on AfC conditions. Consequently, the earlier consultation proposed that the new contribution structure should reflect those pay bands.
While there might be differences between the AfC pay award in England and the AfC pay award applicable to Wales, the AfC pay award for England is used to increase the pensionable earnings thresholds for the contribution tiers. This is consistent with the rationale that the thresholds should be uplifted by the pay award that applies to the single largest cohort of NHS staff who are eligible to join the NHS Pension Scheme.
Proposed thresholds in the member contribution structure
The consultation document proposed that the new thresholds in the member contribution structure for members who have their contribution rate on their current pensionable earnings would be as follows.
Table 1: member contribution structure from 1 October 2022 for members whose contribution rate is based on their current (in-year) pensionable pay
| Tier | Pensionable earnings (rounded down to the nearest pound) | Contribution rate from 1 October 2022 |
|---|---|---|
| 1 | £0 to £13,231 | 5.1% |
| 2 | £13,232 to £16,831 | 5.7% |
| 3 | £16,832 to £22,878 | 6.1% |
| 4 | £22,879 to £23,948 | 6.8% |
| 5 | £23,949 to £28,223 | 7.7% |
| 6 | £28,224 to £29,179 | 8.8% |
| 7 | £29,180 to £43,805 | 9.8% |
| 8 | £43,806 to £49,245 | 10% |
| 9 | £49,246 to £56,163 | 11.6% |
| 10 | £56,164 to £72,030 | 12.5% |
| 11 | £72,031 and above | 13.5% |
The member contribution structure is designed to give a discounted rate of 5.1% to the very lowest earning members who are earning less than £13,232 a year.
This is intended to support the affordability of the NHS Pension Scheme for members who are earning less than the threshold at the bottom of tier 2. These members will all work less than full-time hours and are unlikely to receive income tax relief on their pension contributions if their NHS role is their only source of income, which may reduce the affordability of the NHS Pension Scheme for the very lowest earners. Consequently, the consultation proposed to keep this threshold frozen and not increase it in line with the AfC pay award.
The lower threshold for tier 8 reflects the mid-point in band 7 of AfC (2 to 5 years’ experience). In England, the pay award for this pay band has a 4% underpin and is therefore uplifted by £1,684.84. Consequently, the new threshold would be £43,805.84. However, the thresholds in the member contribution structure are all whole numbers so it was proposed that the threshold should be rounded up to £43,806.
It was proposed that the remaining thresholds would be uplifted by £1,400 in line with the AfC pay award for England.
Respondents were asked to consider whether the table had been accurately uplifted in line with the AfC pay award for England.
Figure 1: a graph on the responses to the question ‘Do you agree or disagree that the proposed pensionable earnings thresholds in the member contribution structure set out in table 2 of the consultation page correctly reflect the AfC pay award for England?’
| Response | |
|---|---|
| Agree | 38% |
| Disagree | 43% |
| Don’t know or didn’t say | 19% |
The feedback on the proposed increases to tier thresholds was very mixed, with 38% agreeing with the proposal and 43% disagreeing. 19% of respondents either did not know or did not answer the question.
The reasons respondents gave for disagreeing with the question were mainly centred around the member contribution structure itself and the cost of contributing to the NHS Pension Scheme. Some members raised that they would prefer to be able to have a choice over the amount they pay as member contributions whereas others cited concerns around the cost of living.
The member contribution structure itself and the contribution rates contained within it were subject to extensive consultation with stakeholders. This included a public consultation that ran from 15 October 2021 until 7 January 2022 with over 1,000 responses. In response, DHSC confirmed that the member contribution structure would come into force on 1 October 2022 and that the tier thresholds would be uplifted in line with the AfC pay award for England.
A small number of respondents disagreed with the proposal because they believed that an increase of £1,400 was applied to all the tier thresholds and it therefore did not correlate with the AfC pay award for England.
The proposed uplifts to the tier thresholds were not all £1,400 and instead corresponded to the relevant AfC pay award amount in England. This is particularly relevant to the lower threshold for tier 8, which was uplifted by £1,685.
Some respondents noted that there are members who are not employed on AfC terms and conditions, and therefore felt that the uplifts should be calculated by a different process. Concerns were raised that members who receive pay awards that are in excess of the AfC pay award may still pay higher contribution rates due to their pay increasing as a result of their pay award.
Additionally, some respondents raised concerns about whether other pensionable pay elements (for example, high cost of living area supplements) would lead to members seeing their contribution rate increased.
The policy intention of annually uplifting the tier thresholds is to reduce the likelihood of members paying higher contribution rates due solely to nationally agreed pay awards. However, it is not envisaged that these circumstances will be completely eradicated by annually uplifting the tier thresholds.
The tiered contribution structure in the NHS Pension Scheme applies to all members and is consistent across different staff groups. The rationale for uplifting the tier thresholds in line with the AfC pay award for England was that it was the pay award that applies to the largest cohort of staff. Further information on the decision to increase the tier thresholds in line with the AfC pay award can be found in the earlier consultation document and response.
Concerns were raised by respondents that the uplifted tier thresholds were not proposed to be backdated to 1 April 2022. The reason for this is that the current member contribution rates and tier thresholds would continue in existence until they were replaced by the new member contribution structure on 1 October 2022. Consequently, DHSC did not propose to uplift the tier thresholds for the 1 April 2022 to 30 September 2022 period. In the future, uplifts will occur annually.
A small number of respondents raised that the bottom threshold in tier 2 (£13,232) had not been uplifted in accordance with the AfC pay award for England and it was suggested that this threshold should also receive a £1,400 increase to be consistent with AfC pay bands.
As set out in the consultation document, the bottom tier in the contribution structure was designed to provide a discount to the very lowest earning members in order to support the affordability of the NHS Pension Scheme. These members will all work less than full-time hours and therefore will receive a pro-rated proportion of their AfC pay award applicable to their full-time hours. The threshold is also linked to the personal tax allowance and, consequently, it is not appropriate to increase this threshold by £1,400.
In their response, the NHS Pension Scheme Advisory Board (SAB) suggested increasing the upper boundary of tier 1 from £13,231 to £13,246. Their response stated:
SAB understands that tier 1 upper bound has been set with reference to the personal tax allowance of £12,570, assuming that the lowest contribution rate is 5.0%.
However, from 1 October 2022, the minimum contribution rate will 5.1%. Using the same approach, this implies that the tier 1 upper boundary should actually be set at £13,246.
SAB appreciates that this is a minor discrepancy but thought it should be brought to the department’s attention.
We have considered this feedback and will amend the tier 1 threshold accordingly. This will mean that we will also increase the lower boundary of tier 2 to £13,247. This increase to the upper threshold of tier 1 will mean that a small number of members will now fall within tier 1, rather than tier 2 and, consequently, see a slight reduction in their member contributions. Increasing the tier boundary in this way will benefit this small group of members. Consequently, the new member contribution structure for members whose contribution rate is based on their current (in-year) pensionable pay that will come into force will be as follows.
Table 2: member contribution structure for members whose contribution rate is based on their current (in-year) pensionable pay from 1 October 2022, following consultation feedback
| Tier | Pensionable earnings (rounded down to the nearest pound) | Contribution rate from 1 October 2022 |
|---|---|---|
| 1 | £0 to £13,246 | 5.1% |
| 2 | £13,247 to £16,831 | 5.7% |
| 3 | £16,832 to £22,878 | 6.1% |
| 4 | £22,879 to £23,948 | 6.8% |
| 5 | £23,949 to £28,223 | 7.7% |
| 6 | £28,224 to £29,179 | 8.8% |
| 7 | £29,180 to £43,805 | 9.8% |
| 8 | £43,806 to £49,245 | 10% |
| 9 | £49,246 to £56,163 | 11.6% |
| 10 | £56,164 to £72,030 | 12.5% |
| 11 | £72,031 and above | 13.5% |
Under usual practice, the payment of backdated pay awards means that members have their contribution rates reassessed in order to pay the correct rates in relation to the period of backdated pay. Given that the current member contribution structure remains in force until 30 September 2022, this means that any backdated pay awards (such as the AfC pay award, which is backdated to 1 April 2022) will cause a reassessment of contribution rates against the current member contribution structure.
The SAB suggested that this process is waived for this year and that members continue to pay contribution rates as if they had not received a backdated pay award. The SAB give 2 reasons for this:
- reducing the administrative workload on employers
- reducing the likelihood of members tipping into a higher tier
Delaying the introduction of the new member contribution structure until 1 October 2022 was in response to feedback from the original consultation on the potential impact on take-home pay if the changes commenced on 1 April 2022. Delaying the changes in this way meant that the current member contribution structure and current administrative practices would continue until 1 October 2022. Additionally, it might feel unfair to members who have previously seen their contribution rates increase due to a re-banding exercise in previous years and it is the policy intention that members should pay the accurate contribution rate. Consequently, the reassessment and potential re-banding exercise will continue as normal.
Pension scheme eligibility correction
The consultation document set out that we have previously consulted on amendments to the NHS Pension Scheme regulations and the transitional regulations required as a result of the Public Service Pensions and Judicial Offices Act 2022.
As a result of that consultation and Act, the legacy 1995/2008 scheme, the reformed 2015 scheme and the transitional regulations were amended to close the legacy scheme to future accrual from 1 April 2022, and allow all active members of that scheme to move into the reformed scheme from that date.
As part of those changes, the transitional regulations were amended so that re-employed pensioners of the legacy scheme who were no longer eligible to accrue benefits in the legacy scheme from 1 April 2022 would be eligible to join the reformed scheme from that date.
However, in respect of the 2008 section, one group of re-employed pensioners eligible to join the reformed scheme was inadvertently omitted from the amending regulations. This pensioner group is the 2008 section tier 2 ill-health pensioners whose tier 2 pension has been permanently reduced to a tier 1 pension. This happens on the first anniversary of their return to NHS employment.
Therefore, DHSC proposed to make a technical amendment to correct this omission and include this group of tier 2 ill-health pensioners in the transitional regulations as intended. This will permit such pensioners to join the reformed scheme where the first anniversary of their return to NHS employment falls on or after 1 April 2022. This provision will have retrospective effect from 1 April 2022.
Proposed amendments to the NHS Pension Scheme regulations
Draft regulations to amend scheme rules
The rules of the NHS Pension Schemes are set out in regulations, which are 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 draft amending regulations were published alongside this consultation document. The draft amending regulations amend the National Health Service Pension Schemes (Member Contributions etc.) (Amendment) Regulations 2022, which made changes to member contribution provisions in the 2015 scheme to come into force on 1 October 2022.
Respondents were asked whether they thought that the draft regulations gave effect to the policy intentions that were set out in the consultation document.
Figure 2: a graph on the responses to the question ‘Do you agree or disagree that the draft amending regulations give effect to the policy intentions set out in this document?’
| Response | |
|---|---|
| Agree | 41% |
| Disagree | 31% |
| Don’t know or didn’t say | 28% |
The feedback on the regulations was mixed, with 41% agreeing that the draft amending regulations gave effect to the policy intentions in the consultation document, and 31% disagreeing. 28% of respondents did not know or did not say whether they agreed or not.
Most respondents who did not agree that the draft regulations gave effect to the policy intentions set out in the document did not explain why they disagreed. Those that did appeared to disagree with the policy intentions, rather than the drafting of the regulations.
The scheme administrator, the NHS Business Services Authority, expressed concerns around the administrative implications of having 2 contribution rate tables with different pensionable earnings thresholds – one applying to members who have their rate based on their previous year’s pensionable pay and another table for members who have their rate based on their current pensionable pay.
It would also mean that members whose pay did not increase during the scheme year could end up paying higher contribution rates than others on the same salary, but whose pay had increased and so had triggered a reassessment of their contribution rate. Without that reassessment, their contribution rate would not be reduced until the following scheme year.
The original intention behind having one table for members who have their rate based on their previous year’s pensionable pay and another table for members who have their rate based on their current pensionable pay was to provide a mechanism to calculate rates at the start of the scheme year, even if the AfC pay award had not yet been determined and put into payment. It was also intended that members who receive a pay award would have their rates recalculated against the uplifted thresholds.
Following this feedback, we will also update the pensionable earnings thresholds in the table in regulation 30(3) of the 2015 scheme for employed members who have their contribution rate based on previous scheme year pensionable pay. This is in addition to updating the pensionable earnings thresholds in the table in regulation 30(3A) of the 2015 scheme for employed members who have their contribution rate based on their current scheme year pensionable pay, as shown in Table 2 of this consultation document.
The table for employed members who have their contribution rate based on previous scheme year pensionable pay will be the same as the table for members who have their contribution rate based on current scheme year pensionable pay. Therefore, the new member contribution structure for members whose contribution rate is based on their previous scheme year pensionable pay will be as follows.
Table 3: member contribution structure for employed members whose contribution rate is based on their previous scheme year pensionable pay from 1 October 2022, following consultation feedback
| Tier | Pensionable earnings (rounded down to the nearest pound) | Contribution rate from 1 October 2022 |
|---|---|---|
| 1 | £0 to £13,246 | 5.1% |
| 2 | £13,247 to £16,831 | 5.7% |
| 3 | £16,832 to £22,878 | 6.1% |
| 4 | £22,879 to £23,948 | 6.8% |
| 5 | £23,949 to £28,223 | 7.7% |
| 6 | £28,224 to £29,179 | 8.8% |
| 7 | £29,180 to £43,805 | 9.8% |
| 8 | £43,806 to £49,245 | 10% |
| 9 | £49,246 to £56,163 | 11.6% |
| 10 | £56,164 to £72,030 | 12.5% |
| 11 | £72,031 and above | 13.5% |
This will allow members to benefit from the uplifted tier thresholds, whether or not they have received a pay increase for 2022 to 2023. DHSC will explore the possibility of using a single table when implementing future uplifts.
Table 2 in regulation 31 of the 2015 scheme will be updated as shown in Table 2 of this consultation document because practitioners currently have their rate set on their estimated annualised pensionable earnings. Following the close of the scheme year, their actual annualised earnings are calculated, and any underpayments are collected and overpayments are reimbursed. Consequently, the regulations will continue to have a table that applies for the scheme years from 2015 to 2016 through to 2021 to 2022 (Table 1 in regulation 31), and a separate table that will apply from 1 October 2022 for the scheme year 2022 to 2023 (Table 2 in regulation 31).
Retaining the existing contribution rate table in regulations will allow practitioner members to apply the correct contribution rate once their annualised pensionable earnings have been finalised.
This also establishes the correct structure in regulations for practitioners to finalise their member contributions and ensure that the correct rate is paid, following the end of each scheme year. This table will be updated by further regulations in April 2023.
Conclusion
DHSC is grateful for the responses received to this consultation, which have helped test the proposals, and provided valuable insight from the NHS Pension Scheme membership and interested stakeholders.
DHSC has consulted those who appear to be likely affected by the proposed changes to regulations with a view to reaching agreement. Overall, where there was disagreement with the proposals, this was largely due to members expressing disagreement with previously consulted on policy, and not disagreement with the proposal to increase the pensionable earnings thresholds in the member contribution structure in line with the AfC award for England, which was the subject of this consultation.
Following consultation, DHSC intends to proceed with both of the following proposals:
- Uplift the pensionable earnings thresholds in the member contribution structure, in line with the AfC pay award for England.
- Correct the omission in relation to pension scheme eligibility.
Following consultation, DHSC has determined that the following 2 changes are required to the draft regulations:
- The regulations will be amended so that both tables that determine member contribution rates for employed members will be the same, whether they base their contribution rate on their previous year’s pensionable pay or their current pensionable pay. This will allow all members to have their contribution rate determined in accordance with the new contribution structure, which contains the uplifted tier thresholds.
- The upper boundary of tier 1 will be increased from £13,231 to £13,246, and the lower boundary of tier 2 will be increased from £13,232 to £13,247.
DHSC will lay the final regulations before Parliament in due course such that the proposed changes are in place for 1 October 2022.