Final pay control charges - what you need to know
Final pay control charges can catch practices unaware and can often involve significant liability. It is important for practices to understand the issues surrounding these charges and when they might be triggered.
The aim of the rules on 'final pay controls' is to protect the NHS Pension Scheme against the costs of excessive increases in employees' pensionable pay inflating pension benefits, particularly where employees' benefits are linked to their final salary. This can become relevant to GP Practices, and many practices have received "final pay control charges" where an employee has a pensionable pay increase exceeding the allowable amount (namely, the consumer prices index (CPI) plus 7%) in the final three years of their employment. These additional employer pension contribution charges can be substantial.
Another issue of relevance for GP practices is where a non-clinical employee becomes a partner but then retires as a partner within three years. If the practice has 'a good year' which leads to their taking home more than expected (over the limit) that can lead to a charge arising.
The only way to avoid final pay control charges is if pensionable pay increases remain within the allowable amount, or if an exemption applies under the National Health Service Pension Scheme Regulations 1995.
Exemptions to final pay control charges
There are various exemptions from such charges, particularly where the employees' pay rise was due to genuine reasons. Examples include increases in the minimum wage, increases due to Agenda for Change, and an increase due to a promotion after a 'fair and open competition'. The full list of exemptions is contained within Regulation D3 of the 1995 Regulations.
If a practice receives a final pay control charge and no exemption applies, the partners will be liable for the charge. Issues can arise in relation to who should pay the charge, and who should benefit from any later reimbursement. Where it can be particularly complicated is where the charge is made a year or so after the pay rise, and in the meantime a partner has left, and another partner has joined. The charge is made against the partnership - but should the new partner pay? And can a proportion of it be recovered from the retired partner?
Appealing a final pay control charge
It is possible for final pay control charges to be levied against practices incorrectly, where for an example an exemption does apply but was overlooked. We've assisted practices to successfully appeal incorrectly applied charges.
If your practice has received a final pay control charge and you have a query on the calculations, or if you consider that an exemption applies and you wish to appeal the charge, the first step is to contact nhsbsa.fpc@nhs.net setting out the reasons for the appeal and any accompanying evidence.
Practical tips
There are some practical steps that practices can take in relation to final pay control charges, for example:
- Ensure that your partnership agreement contains provisions which cover how final pay control charges and reimbursements should be allocated.
- Ensure that you regularly review staffing costs and check whether staff seeking to retire may trigger a final pay control charge, so that you can understand your legal position early on and plan ahead.
- If you wish to appeal a final pay control charge as you consider an exemption applies, seek additional assistance from third parties - for example the LMC, or by involving solicitors.