NHS Pension Scheme: proposed uplifts to the member contribution tier thresholds for 2023 to 2024 - response to consultation
Updated 25 May 2023
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This publication is available at https://www.gov.uk/government/consultations/nhs-pension-scheme-proposed-uplift-to-member-contribution-thresholds-for-2023-to-2024/outcome/nhs-pension-scheme-proposed-uplifts-to-the-member-contribution-tier-thresholds-for-2023-to-2024-response-to-consultation
Background and summary of proposals
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.
Proposed changes to scheme rules
The member contribution structure itself and the contribution rates contained within it were subject to extensive consultation with stakeholders. This included a public consultation, NHS Pension Scheme: proposed changes to member contributions and the associated regulations, which ran from 15 October 2021 until 7 January 2022 with over 1,000 responses. In response the department confirmed that the member contribution structure would come into force on 1 October 2022 and that the pensionable earnings thresholds in the member contribution structure would be uplifted to account for the Agenda for Change (AfC) pay increase in England.
It is the Department of Health and Social Care’s (DHSC) policy to set out the thresholds in regulations and therefore they must be updated annually. To streamline this process, the department proposed to put the draft amending regulations out to a short consultation to enact new legislation as swiftly as possible after the pay award has been announced.
A similar process was performed last year in order to increase member contribution thresholds in line with the 2022 AfC award for England.
This consultation therefore set out the proposed uplifts to the contribution tier thresholds in line with the 2023 AfC award for England, with a view to reaching agreement with those who appear likely to be affected by the changes. The consultation was accompanied by draft amending regulations to give effect to these threshold changes.
Agenda for Change pay award
As explained in NHS Pension Scheme: proposed changes to member contributions, in order to annually increase the contribution tier thresholds in line with the AfC pay award, further changes need to be made to the contribution thresholds.
See details of the pay award in a written ministerial statement on the UK Parliament website.
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, it was proposed in the original consultation that the new contribution structure should be linked to those pay bands.
While there might be differences between the AfC pay award in England and the AfC pay award applicable to Wales, the tier thresholds have been increased to align with the AfC pay award for England. This is consistent with the rationale that it is the pay award that applies to the single largest cohort of NHS staff who are eligible to join the NHS Pension Scheme. This is consistent with how the tier thresholds were uplifted last year.
Proposed increases to the member contribution structure thresholds
The consultation document set out proposed changes to the member contribution structure. This follows amendments made last year to the tier thresholds in the member contribution structure. The current member contribution structure is as outlined in table 1, below.
Table 1: member contribution structure from 1 October 2022
| 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% |
Following the announcement of the AfC pay award in England, the consultation proposed that the member contribution structure be updated with backdated effect to 1 April 2023. This is in line with the AfC pay award in England.
The consultation proposed that from 1 April 2023, the member contribution structure for the period 1 April 2023 to 31 March 2024 will be as outlined in table 2.
Table 2: proposed member contribution structure from 1 April 2023 as consulted on
| Tier | Pensionable earnings (rounded down to the nearest pound) | Contribution rate from 1 April 2023 |
|---|---|---|
| 1 | £0 to £13,246 | 5.1% |
| 2 | £13,247 to £17,673 | 5.7% |
| 3 | £17,674 to £24,022 | 6.1% |
| 4 | £24,023 to £25,146 | 6.8% |
| 5 | £25,147 to £29,634 | 7.7% |
| 6 | £29,635 to £30,638 | 8.8% |
| 7 | £30,639 to £45,995 | 9.8% |
| 8 | £45,996 to £51,707 | 10% |
| 9 | £51,708 to £58,971 | 11.6% |
| 10 | £58,972 to £75,632 | 12.5% |
| 11 | £75,633 and above | 13.5% |
The new structure increased most thresholds by 5%, in order to align with the AfC pay deal. It was proposed that the table would be updated at each point it is mentioned in the 2015 Regulations.
In table 2, the bottom rate of pensionable earnings at tier 1 remains at £0.00 to ensure that all pensionable earnings are considered for the calculation of member contributions. Consequently, the bottom of this tier does no need to be uplifted.
The member contribution structure was designed to give a discounted rate of 5.1% to the very lowest earning members. This was 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, this threshold has been frozen and not increased in line with the AfC pay award.
Summary of consultation process
The consultation ran for 2 weeks, from 3 to 17 May 2023. A consultation document describing the proposals, and a draft Statutory Instrument (SI) setting out the regulation changes were published on GOV.UK alongside an online consultation platform.
Prior to the 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 (SAB) 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 consultation set out the proposed increases to the pensionable earnings thresholds for 2023 to 2024, in line with the 2023 AfC pay award for England. SAB 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 correctly reflects the AfC pay award for England?
- Do you agree or disagree that the draft amending regulations give effect to the new member contribution structure set out in this consultation?
A total of 138 responses were received. The responses came from 131 individuals and 7 stakeholder organisations, including trade unions and employers. The following organisations responded to the consultation:
- Bradford District Care NHS Foundation Trust
- the British Medical Association
- Cambridgeshire and Peterborough NHS Foundation Trust
- the Chartered Society of Physiotherapy
- Edinburgh Napier University
- GMB (union)
- NHS Pension Scheme Advisory Board
- St George’s University of London
Summary of consultation feedback
The department is pleased to note that individual and stakeholder responses to the consultation were generally supportive of the proposals. 77% of respondents to the online survey agreed with the proposals to increase member contribution thresholds in line with the value of the AfC pay award for England (18% disagreed, 5% ‘don’t know’). SAB welcomed the proposals, and recognised that increasing member contribution thresholds in line with the AfC pay award for England reduces the possibility that a small number of members would have a portion of the pay award eroded as a result of crossing contribution tiers.
Not increasing the bottom tier in line with the AfC pay award for England
A number of consultation respondents, including individuals and SAB, expressed concerns that the top of the bottom contribution tier was not uplifted in line with the award. SAB recognised that the bottom tier was set with reference to the basic rate of income tax and has not been increased because the threshold for basic rate income tax has not changed. However, SAB believe that not increasing the bottom tier in line with the award is a missed opportunity to improve overall scheme affordability for the lowest paid.
The department notes these concerns, and the previous commitments made during the ongoing review of member contributions to uplift tiers in line with the value of the AfC award for England. However, as stakeholders have highlighted, the bottom tier was designed to link to the threshold for basic rate income tax. This is because NHS Pension Scheme members who earn less than the amount required to pay basic rate income tax do not qualify for net pay arrangement tax relief. This means that they do not benefit from tax relief on their pension contributions unlike other scheme members.
Scheme members who fall into the bottom tier will work less than full time hours but are unlikely to receive tax relief on their contributions unless they have an additional income source. The lowest tier was designed to give these members the benefit of tax relief at source to incentivise pension saving from this group. Therefore, it would not be appropriate to increase the bottom tier in line with the pay award, because to do so would mean that members who earn enough to pay basic rate tax would receive a double benefit of tax relief via a net pay arrangement and tax relief at source via reduced contributions. Such a position would not be fair to other scheme members.
Uplifting tiers in line with the AfC award for England
The British Medical Association and SAB questioned the proposal to increase the member contribution thresholds in line with the Agenda for Change pay award for England, in a year when the Welsh Government had introduced a higher pay award for Agenda for Change staff in Wales.
The decision to increase thresholds in line with the Agenda for Change pay award in England is taken on the basis that this is the pay award that applies to the single largest cohort of NHS staff who are eligible to join the NHS Pension Scheme. It is also consistent with how tier thresholds were uplifted last year, and the principle of uplifting tiers in line with the Agenda for Change pay award in England that has been previously agreed with the SAB and consulted on publicly.
Increasing thresholds in line with the highest pay award would mean that a number of members who receive a lower award would drop into a lower contribution tier. This would present a long-term risk to the scheme as the number of contributions collected from members would fall under the yield. As a consequence, the member contribution rates across the structure would need to be increased to ensure the yield is collected.
The department will review the impact of differing pay awards on the member contribution structure going forward.
Methodology used to calculate the uplifted tiers
A number of consultation respondents expressed concerns that the rounding methodology used to generate the proposed updated member contribution structure did not produce the full value of a 5% increase for each of the tiers.
The department has considered this feedback closely and produced an updated structure. The updated structure responds to feedback and uses the methodology of rounding up to the nearest pound when setting thresholds where a 5% increase leads to a level of earnings that does not equal a whole pound. The scheme will then continue to round down to the nearest pound for the purposes of calculating pensionable earnings against the member contribution structure. This ensures the best outcome for members, and that all tiers will receive the full value of a 5% uplift.
The updated structure is as follows in table 3.
Table 3: revised new member contribution structure to apply from 1 April 2023
| Tier | Pensionable earnings (rounded down to the nearest pound) | Contribution rate from 1 April 2023 |
|---|---|---|
| 1 | Up to £13,246 | 5.1% |
| 2 | £13,247 to £17,673 | 5.7% |
| 3 | £17,674 to £24,022 | 6.1% |
| 4 | £24,023 to £25,146 | 6.8% |
| 5 | £25,147 to £29,635 | 7.7% |
| 6 | £29,636 to £30,638 | 8.8% |
| 7 | £30,639 to £45,996 | 9.8% |
| 8 | £45,997 to £51,708 | 10.0% |
| 9 | £51,709 to £58,972 | 11.6% |
| 10 | £58,973 to £75,632 | 12.5% |
| 11 | £75,633 and above | 13.5% |
Next steps
The department is grateful for the contributions of individuals and stakeholders who responded to the public consultation process and is pleased to note that respondents were generally supportive of the proposals to increase the member contribution thresholds in line with the AfC pay award for England.
On this basis, the department intends to proceed with the regulations and will make arrangements to lay a statutory instrument which gives effect to the regulation changes at the earliest available opportunity. The final regulations will contain the revised member contribution structure which reflects the rounding issues highlighted by consultation respondents.
The department notes the concerns expressed by SAB and others that there is a need to proceed quickly to ensure that the implementation of the new structure aligns with the implementation of the pay award. The department will proceed to implement the new structure at the earliest available opportunity.
As part of this consultation process, the department has become aware of the potential risk to members posed by the alignment of implementing the annual pay award and making the necessary changes to NHS Pension Scheme regulations to increase member contribution thresholds accordingly.
In light of this, the department will work with SAB to consider ways in which this process can be streamlined in future years. It is important that regulation changes are made as quickly as possible following the announcement of the annual AfC pay award to ensure that members do not temporarily pay increased contributions during the period between the pay award being implemented and NHS Pension Scheme regulations catching up.
Future changes to the member contribution structure
As part of ‘NHS Pension Scheme: proposed changes to member contributions’, a further phase of reform to the member contribution structure was consulted on. Originally, this phase was intended to be implemented on 1 April 2023, however implementation was delayed to the member contribution structure following consultation.
The regulatory amendments associated with the second phase of the member contribution reforms will be put out to consultation shortly.
As part of this, and in light of the feedback expressed by respondents as part of this consultation process, the second phase of the member contributions review will consider the future of the bottom contribution tier in greater detail.