Final Pay Controls

Lentells Medical Division

What is it?

NHS employers need to be aware that a final pay control charge could apply where an NHS pension scheme Officer or practice staff member has a pay increase in excess of the ‘allowable amount’ which then results in disproportionately high NHS pension benefits.

 

Who does it affect?

The controls only affect Officer or practice staff members with 1995 section membership.  This does include those who have since transitioned to the 2015 scheme, but have historic 1995 section membership.  They also could apply to all members of the 1995 scheme who ‘transfer out’ of the scheme.  Therefore, it can also affect non-GP partners such as practice managers and nurses where pensionable pay can fluctuate depending on practice profits.

 

Who doesn’t it affect?

The controls do not apply to individuals who are solely members of the 2008 section or the 2015 scheme and self-employed GP practitioners whose pensionable pay comes under the practitioner scheme.

 

The charge

The final pay controls rules state that if an individuals’ pensionable pay increase received within the last three years of their pensionable employment exceeds the ‘allowable amount’, which is defined as 4.5% plus CPI, then NHS pensions can impose a fine to the employer, based on the excess pension receivable, multiplied by the estimated number of years they will receive that benefit.

 

Who pays?

NHS pensions is responsible for identifying where there has been a pensionable pay increase exceeding the allowable amount, and will calculate and invoice the employer for the full amount due.  It is the employer who is liable to pay the charge, not the employee.

 

The calculation (a hypothetical scenario)

The calculations are very complex.  NHS pensions calculate the excess pensionable pay – which is the increase over 4.5% plus the CPI % for that year.  So in a very simple situation, someone on a salary of £30,000 per annum is given a 10% pay-rise.  The allowable amount is 4.5%, plus say 2% CPI which equates to £1,950, therefore the excess pensionable pay is £1,050.

 

The excess pensionable pay is then multiplied by the members’ scheme membership to give the excess annual pension and lump sum amounts.

 

The excess pension benefits are then multiplied by the pension Scheme Actuaries final pay control factor – which is dependent on age.  This then gives the full charge payable by the employer.  This figure can be substantial so in this example, if it related to an individual with 30 years’ service and they were aged 60, the charge to the employer would be £9,293.