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NHS Pension Scheme Reforms - Changes to Final Pay Controls

on Wednesday, 28 July 2021.

Following a consultation process earlier this year, the Department of Health and Social Care has confirmed reforms to the NHS Pension Scheme Regulations and Final Pay Control Charges.

What Are the NHS Pension Scheme Reforms?

Final pay control charges were originally brought in to protect the NHS Pension Scheme against the cost of excessive increases in employees' pensionable pay inflating their pension benefits, at no cost to the employer.

Practices can receive final pay control charges if an employee has a pensionable pay increase exceeding the allowable amount, which is the consumer prices index (CPI) plus 4.5%, in the three years before their retirement. The reforms look to increase the allowable amount to CPI plus 7%.

There are various exemptions to the final pay control regulations which prevent practices from receiving charges for awarding pay increases to employees for genuine reasons, for example increases due to an increase in the national minimum wage, and increases pursuant to the NHS's Agenda for Change framework. The reforms look to introduce further exemptions. 

The changes are effective from 1 July 2021.

It has also been confirmed that payments under the 'golden hello' scheme (officially known as the 'New to Partnership Payment Scheme') will not be subject to pension deductions. This amendment will have retrospective effect from 1 April 2020.

What Do GP Practices Need to Do?

If your practice has received a final pay control charge since 1 April 2018, you can make a claim for reimbursement by applying to NHS Pensions for the charge to be reassessed under the amended regulations. Claims must be submitted within six months of the amendments to the regulations coming into force - details of the application process are yet to be announced.

The reforms are a reminder that it is important to ensure that your partnership agreement and any retirement arrangements cater for how final pay control charges and reimbursements should be allocated. Most partnership agreements will not contain provisions which address these points, so the reforms certainly provide a reason to review and update your partnership agreement.

Issues may arise in relation to who should pay any final pay charge, and who should benefit from any later reimbursement. The partners will be liable for the charge - but the partnership agreement can set out how payment should be allocated between partners. Some questions you may wish to consider when updating your partnership agreement are:

  • If a new partner has joined and the practice receives a final pay control charge for an employee that left prior to the new partner joining, should the new partner contribute to paying the charge?
  • If a new partner has joined and the practice receives a reimbursement for a final pay control charge that was paid before they joined the partnership, should the new partner benefit from the reimbursement?
  • If a partner has retired, and the practice receives a final pay control charge for an employee that left whilst they were a partner, should the retired partner contribute to paying the charge?
  • If a partner has retired, and the practice receives a reimbursement for a final pay control charge that was paid whilst they were a partner and to which they contributed, should they benefit from the reimbursement?

In addition, if your partnership agreement does not contain provisions relating to pay control charges and reimbursements, there is potential for disputes to arise. Partnership disputes can be a drain on management time and resources, and there can be a lot at stake. We regularly assist with partnership disputes and we take a pragmatic and commercial approach when providing advice.

If you need legal advice or would like to discuss the NHS Pensions reforms, please do not hesitate to contact Rachel Crean (07387 025973) or Oliver Pool (07976 621438) in our Healthcare team.  Alternatively, complete the form below.

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