Dear colleague

Changes to the NHS Pension Scheme






The Government has announced  how it intends to proceed with plans to increase public service pension's contributions in 2012-13 while plans for talks on pension reform continue into the autumn.

Each of the public service pension schemes will shortly start consultations on their proposals for member contribution increases from April 2012. These consultations will only relate to delivering savings in the first year, and will run to the end of October.

You can read more about today's announcement  on the HM Treasury website here. Today's news follows the Government's announcement in last year's Spending Review that public sector workers would be asked to contribute an average of 3.2% more for their pensions, phased in over three years from April 2012.

I thought it would be helpful to provide you with a summary of these proposals and the potential implications for the workforce so you can keep your employees and board fully informed.

In order to meet the Spending Review commitment, public service pension schemes (including the NHS Pension Scheme) were asked to develop designs based on three key principles:

. low paid staff should be protected
. that increases should be progressive so the higher paid pay more, and 
. any changes should minimise the chances of members opting out

Today's announcement confirms that separate scheme specific discussions will be required to submit proposals by the end of October, on how the identified savings can be achieved based on these principles. We welcome the opportunity to engage with the national trade unions in the development of proposals for the NHS Pension Scheme.

The Government's proposals also sets out that there should be no increase in member contributions for those earning under £15,000 and no more than a 1.5% increase in total (before tax relief) by 2014-15 for those earning up to £21,000. 
The total increase will also be capped at 6% (before tax relief) by 2014-15 for the highest earners. This amounts to a 2.4% cap (before tax relief) in 2012-13 on a pro-rata basis. We expect the Department of Health to announce the details of the consultation for the NHS Pension Scheme shortly. The consultation will only cover increased employee contributions for 2012/13, approximately 40% of the 3.2% necessary to meet the Spending Review commitments.

Scheme specific proposals for the additional savings will be considered alongside the wider ranging recommendations for public sector pension reform made by Lord Hutton.  The Government's response to Lord Hutton's Independent Public Sector Pension Commission is expected in the Autumn.

The NHS Employers organisation has a strong record of achieving significant change to the NHS Pension Scheme through effective partnership working. We remain committed to this process to take forward the implementation of future reforms.

The Government has said that if the reforms recommended by Lord Hutton are introduced, the benefits members will receive in the future for service up to the date of any new arrangements will be no worse than those they would get if they left the scheme then. 
There are no proposed changes to income tax relief, so, as now, the Government will continue to give members tax relief on these increased contributions - 20% for standard rate tax payers and 40-50% for higher rate taxpayers.

Over the last few months, during discussions with the government and trade unions, the NHS Employers organisation has been involved in evaluating possible contribution structures with a range of employers, supported by a series of Chatham House events.

We recognise that pensions are a sensitive issue and there has been a great deal of commentary in the media. We have highlighted the importantance of staff being engaged to ensure that they are aware of the benefits of their pension schemes and are able to make informed decisions on this key employment benefit.

We have been reported in the press as saying that it would be not far short of a tragedy if staff started opting out without the benefit of robust and accurate information. And we stand by that statement. We will continue to provide you with information and guidance as the pension discussions continue, and you can find the latest information on our  web pages. You may also want to review the NHS Pension Scheme webpages on

The NHS Employers organisation has also just published a comprehensive staff engagement toolkit if you need any help on proven ways to engage with staff. The toolkit is available on our staff engagement web pages.

It is worth noting that these changes are separate to the Government's response to the Hutton Review, which has made recommendations on the long-term structural reform for all public service pensions.  A summary of the 'Hutton' recommendations that may affect the NHS Pension Scheme are: 
. the role of public service pensions should be made clear 
. greater account should be taken of public service pensions when constructing remuneration packages and designing workforce strategies 
. public service schemes should deliver at least an adequate level of income in retirement 
. accrued rights to be protected with the link to final salary being maintained for past service 
. schemes should provide a form of defined benefit pension as the core design with current members moving to the new scheme for future service
. there should be more frequent publication of data which is produced to a common standard 
. schemes should move to career average rather than final salary with pensions in payment indexed in line with prices 
. there should be a single benefit design with different arrangements for higher and lower earners addressed through tiered contributions 
. flexible retirement should be encouraged with greater choice over when to start drawing pension benefits 
. normal pension age should be linked to state pension age 
. the Government should set a fixed cost ceiling with an automatic default position if agreement can not be reached on how to address increases in cost 
. all public service pensions should move towards a common framework for scheme design 
. non-public service workers should not have access to public service pension provision because of the long-term risks this places on both government and the taxpayer 
. every scheme should have a pension board and pension policy group 
. annual benefit statements should be issued to all active members 
. there should be greater independent oversight of governance, administration and data transparency 
. the Office for Budget Responsibility should provide regular analysis of the long-term impact of schemes 
. there should be a clear standard for scheme administration, and 
. each scheme should carry out consultation on details with involvement of employees and their representatives.

We expect the Government to respond on that area of reform in the autumn.

From April 2011 there has also been changes to the way pensions are taxed in both the annual allowance and lifetime allowance.  These changes principally affect those with higher earnings and longer service.  More information is available on our pension's web pages.

The NHS Employers organisation is working to produce an online calculator, supported by a resource pack, to include illustrative diagrams and Q&As, to help support employers in discussions with staff.

You may also have heard of changes in respect of the Fair Deal policy - treatment of pensions on compulsory transfer of staff from the public sector.  Following the announcement at Spending Review the Government undertook a consultation on the Fair Deal policy in response to a recommendation made in the interim report of the Hutton review.

The Fair Deal policy requires provision of broadly comparable pensions where staff are compulsorily transferred from the public sector to a new non-public sector employer. The Hutton review found that the Fair Deal policy, coupled with current public service pension structures, creates a barrier to the plurality of public service provision. We expect the Government to respond to this policy review early in 2012.

I recognise this is a complex,sensitive and fast changing area and hope you find this update helpful. We will continue to provide the voice of employers in discussion on this issue and will ensure you receive regular updates and information.

I'd welcome any comments or feedback on how we can help and support you. You can contact me at [email protected]. You can also follow us on Twitter and can connect to me on my LinkedIn page where I will be posting regular updates.

Best wishes