The National Health Service Pension Scheme (Amendment)
Regulations 2012
EXPLANATORY NOTES
Introduction
The Department of Health has published for consultation a draft Statutory
Instrument (SI) titled “The National Health Service Pension Scheme
(Amendment) Regulations 2012”.
This document explains the purpose and effect of the provisions set out in the
draft SI.
Structure of these Notes
Section 1: Describes proposed changes to implement increases to member
contribution rates required by Government beginning 1 April 2012.
Section 2: Describes proposed changes to implement reductions to annual and
lifetime allowances for pension savings introduced by the Finance
Act 2011.
Section 3: Describes proposed changes to transfer rules due to the introduction,
for some public sector workers in Isle of Man including NHS, of a new
“unified” pension scheme.
Section 1: Member contribution rates
Background
NHS Pension Scheme regulations require members to pay contributions to the
scheme as a condition of membership. Contribution rates are “tiered”, so that
higher earners receiving larger scheme benefits generally pay a higher rate of
contributions than lower earners receiving lower scheme benefits. The
regulations are amended whenever contribution percentage rates are changed or
pay/earnings band amounts are changed, to keep them in step with Agenda for
Change (AfC) pay rates.
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The 2010 Spending Review set out the Government’s intention to increase
employee contribution percentage rates in public service pension schemes by
3.2% by March 2015, and for schemes to set rates for scheme year 2012-2013,
designed to secure the first ‘instalment’ of this increase.
Following consultation ending 21 October 2011, the Department has confirmed
the following new distribution of contribution rates to secure the increase for
2012-2013. The new rates spread across seven pay (or earnings) bands, to
replace the existing four. A formal response to the consultation and detailed
confirmation of the Department’s intentions is available on the DH website
(www.dh.gov.uk).
Full-time 2010/11 salary or total
pensionable earnings
Up to £15,000
£15,001 to £21,175
£21,176 to £26,557
£26,558 to £48,982
£48,983 to £69,931
£69,932 to £110,273
£110,274 to any higher amount
2012/13 contribution
5%
5%
6.5%
8%
8.9%
9.9%
10.9%
Summary of contribution arrangements
Officer members
Broadly, ‘officer’ members (i.e. members other than practitioners and non-GP
providers) who are in whole-time pensionable employment, both at the end of a
previous scheme year and the beginning of the following current scheme year,
pay contributions in the current scheme year according to the amount of their
pensionable pay during the previous scheme year. The pay bands used to
determine contributions are those applicable to that previous year. If an officer
was employed for only part of a previous scheme year, their pay is first increased
to a whole-year figure. Part-time officer members pay contributions assessed in
the same way but using their whole-time equivalent pensionable pay figure.
Medical and dental practitioner (GP) and non-GP provider (NGPP) members
Broadly, GP and NGPP members pay contributions using the same pay bands
and rates as officer members, but based on their total pensionable ‘earnings’, not
pay. However, pensionable earnings any year are calculated by reference to the
GP/NGPPs relevant tax return, and contributions based on an estimate of likely
earnings for the year, not earnings in the previous year. Estimated contributions
paid are then adjusted following completion of the tax return, and GP/NGPP
certification of final earnings in the relevant year.
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Use of pay/earnings band tables in regulations
Currently, the above methods of calculating contributions require the use of two
pay band tables:


Table 1 - providing the ‘previous scheme year’ pay bands, and
Table 2 - providing the (latest) ‘current scheme year’ pay bands
Officer members
The increased contribution percentages and move to seven pay bands for the
2012-2013 scheme year mean that the new table shown above will initially apply
to ALL officer members for that year, whether they are in continuing employment
or taking up a new post.
Normally, the Pay Review Body (PRB) reviews AfC pay rates annually, with any
changes published in time for payment from 1 April. Pension contribution table
pay bands are normally updated in line with such changes, via regulation
amendments made the following July, retrospective to 1 April.
The current pay-freeze in the NHS (for staff earning £21,000 or more p.a.) means
it is unlikely that there will be a general revision of the pay bands from April 2012.
However, if the effect of the latest PRB review is to again increase pay bands for
staff earning less than £21,000, this may benefit some members, by enabling
them to retain a lower contribution rate than would otherwise be the case.
Consequently, regulations would then (following consultation) be further
amended in July 2012, retrospective to 1 April.
Such an update would trigger a return to the ‘two-table’ format for officers,
between July 2012 and March 2013, with the updated pay bands forming ‘table 2’
and applying to members who join the scheme, have a promotion or change jobs
that year. We expect that the pay bands and contribution rates applicable from 1
April 2013 will be the subject of further consultation and regulation amendments,
similar to those undertaken for the 2012-2013 year.
Differences for GP and non-GP provider members
The different method of contribution assessment for GP and NGPPs means that
the current ‘two-table’ format in regulations will be retained throughout the 20122013 scheme year, mainly to clarify the (unchanged) pay bands and contribution
rates applicable for earlier scheme years. However, any update to the 20122013 pay bands effective from April 2012, (see paragraph 1.9 above) would also
benefit GP and NGPP members, and be implemented by replacing ‘table 2’ for
scheme year 2012-2013.
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Detailed changes
1995 section regulations
1.1
Amending regulation 4
Amendment 4(a) replaces paragraph 1A of regulation D1 (contributions by
members). The new paragraph replaces the current ‘two-table’ format with a
single table, including new pay bands and corresponding contribution rates
applicable to all 1995-section ‘officer’ scheme members for the scheme year
2012/13. (See ‘background’ information above, paragraphs 1.6 and 1.7).
Amendments 4(b), (c) and (d) correct links applicable to the previous ‘two-table’
format, to line up with the new single table format.
1.2 Amending regulation 7
This amendment introduces the new pay bands and contribution rates for
scheme year 2012-2013 for GPs and NGPPs. However, for these members the
current ‘two-table’ format can be retained in regulations throughout the year,
keeping the amendments to a minimum. (See ‘background’ information,
paragraphs 1.5 and 1.11).
Paragraph 2 of Schedule 2 to the 1995 regulations provides that the (1995)
regulations apply to GP and NGPP members, with the modifications described in
the Schedule. Amending regulation 7 replaces sub-paragraph (1A), so that:



the current contribution rate table for scheme years 2009/10 and 2010/11
is retained – ‘table 1’,
the new earnings bands and contribution rates for 2012/13 are inserted –
‘table 2’, and
the definition of ‘relevant table’ is updated to accommodate the above
changes
2008 section regulations
Paragraphs 1.14 to 1.17 following describe changes to the 2008 regulations,
similar to those made to the1995 regulations by amending regulations 4 and 7.
1.3
Amending regulation 11
This amendment replaces the current ‘two-table’ contribution table format in
paragraph (5) of regulation 2.C.2 (contributions for members other than non-GP
providers) with a single table in a revised paragraph (2). The new contribution
table includes the pay bands and corresponding contribution rates applicable to
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all 2008-section ‘officer’ scheme members for scheme year 2012/13. (See
‘background’ information above, paragraphs 1.6 and 1.7).
1.4
Amending regulation 12
This amendment updates the “relevant table” cross reference in various
paragraphs of regulation 2.C.3 (determination of pensionable pay for the
purposes of setting a contribution rate for members other than non-GP providers)
from “paragraph (5)” to “paragraph (2)”, to fit the changes made by amending
regulation 11.
The combined 1995 section contribution changes described for GPs and NGPPs
apply in a similar way for GPs and NGPPs in the 2008 section. However, in the
2008 regulations, NGPPs are covered in Part 2 and GPs in Parts 3 and 4.
1.5
Amending regulation 13
This amendment deals with 2008 section NGPPs, replacing paragraph (15) of
regulation 2.C.4 (contribution rate and determination of pensionable earnings for
non-GP providers) in a way similar to that described for amending regulation 7,
specifically:



1.6
the current contribution rate table for scheme years 2009/10 and 2010/11
is retained – ‘table 1’,
a new earnings bands and contribution rates for 2012/13 is inserted –
‘table 2’, and
the definition of “relevant table”, is updated to accommodate these
changes
Amending regulation 16
This amendment deals with 2008 section GPs, replacing paragraph (17) of
regulation 3.C.2 (member’s contribution rate) in a way similar to that described
for amending regulation 7 above, specifically:



retention of the current contribution rate table for scheme years 2009/10
and 2010/11 – ‘table 1’,
introduction of the new earnings bands and contribution rates for 2012/13
– ‘table 2’, and
updating of the definition of ‘relevant table’, to accommodate these
changes
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Section 2: Finance Act 2011 taxation changes
Background
Finance Act 2011 (FA 11) makes changes to the Finance Act 2004 (FA 04). FA
04 provides for the taxation of pensions, and certain of its provisions prescribe
annual and lifetime allowance limits on tax-relieved pension benefits.
Reduced annual allowance
From 6 April 2011, FA 04 restricts pension tax relief for active scheme members
by reducing the annual allowance level (AAL) to £50,000. Active scheme
members whose pension benefits increase in value by more than the AAL during
any year are required to calculate an “AAL charge” through their self-assessment
tax return. To support this, FA 11 imposes a new responsibility on scheme
administrators, to issue those members affected with a “pension savings
statement” (PSS), setting out benefits to date and the amount by which the value
of their benefits has exceeded the AAL. Schemes are required to issue PSS by
October following any tax year, extended to October 2013 for the first year. FA
11 also imposes a new responsibility on scheme employers to provide
administrators with the information they will need to calculate and prepare PSS
by July any year, extended to July 2013 for the first year.
Finally, FA 11 permits scheme members with large AAL charges (over £2,000) to
apply for a new “scheme pays” arrangement. The facility allows members to
require schemes to pay large AAL charges to HMRC, on their behalf, subject to
the scheme recovering that cost by reduction of current or future benefits.
Reduced lifetime allowance
From 6 April 2012, FA 04 will also reduce the lifetime allowance (LTA), from
£1.8m to £1.5 million. The change is accompanied by a new “transitional
protection” arrangement (AKA “fixed protection”), which permits individuals with
pension savings above £1.5 million (or who believe investment/growth will cause
benefit value to rise above this level) to apply for a personal LTA of £1.8 million.
Individuals requiring transitional protection must curtail pension saving in all
registered pension schemes and apply to HMRC before 6 April 2012. Members
granted “transitional protection” must provide pension schemes with information
and the relevant HMRC reference number, to secure the increased LTA when
retirement benefits are calculated.
These NHS Scheme changes:
 reference the HMRC legislation,
 provide for the “scheme pays” and “transitional protection” arrangements,
and
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
clarify AAL information responsibilities for practitioner and non-GP
provider members
Detailed changes
1995 section regulations
2.1
Amending regulation 3
This amendment inserts a new definition, “the 2011 Act”, in regulation A2
(interpretation). The new definition supports references in the amendments to
the Finance Act 2011.
2.2
Amending regulation 6
This amendment makes the following changes to regulation T2A (deduction of
tax: further provisions):




paragraph (7) introduces technical amendments to improve readability,
and adds new LTA “transitional protection” to the circumstances in which
scheme members must give the scheme administrator information to
assess liability for an LTA charge
new paragraph (8A) provides for members to give the scheme
administrator the relevant HMRC reference number, if they intend to rely
on new “transitional protection”
new paragraphs (12) to (14) provide for scheme members to notify the
scheme administrator that they want the scheme to pay some or all of an
AAL charge exceeding £2,000. Where the administrator accepts such a
notice, the scheme will pay the AAL charge on the member’s behalf and
notify them of the actuarial adjustment required to current or future
benefits. Members will be advised of the adjustment before they commit
to “scheme pays”
new paragraphs (15) and (16) clarify that the obligation on NHS Scheme
employers to provide information to the scheme administrator for
calculation of PSS includes practitioners and non-GP providers, some of
whom will need initially to provide provisional estimates of their
pensionable earnings, in order to meet HMRC deadlines for PSS
production
2008 section regulations
2.3 Amending regulation 9
This amendment makes changes to regulation 1.B.3 (provision of information
relevant for tax purposes), which deals with these matters in Parts 2 and 3 of the
2008 section:
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

new paragraph (3A) requires members relying on new “transitional
protection” to provide the scheme administrator with information and the
relevant HMRC reference number
new paragraphs (6) and (7) clarify that the obligation on NHS Scheme
employers to provide information to the scheme administrator for
calculation of PSS includes practitioners and non-GP providers, some of
whom will need initially to provide provisional estimates of their
pensionable earnings, in order to meet HMRC deadlines for PSS
production
2.4 Amending regulation 10(a)
This amendment inserts in regulation 2.A.1 (interpretation: general) a new
definition for the “Finance Act 2011”, to support changes made in the 2008
regulations.
2.5 Amending regulations 14 and 17
These amendments insert new paragraphs (5) and (6) into regulations 2 and
3.J.8 (deduction of tax), to provide the new “scheme pays” facilities referred to in
paragraph 2.3 above and also under (the third bullet point of) paragraph 6 above.
Section 3: Introduction of Unified Public Service Pension Scheme in the
Isle of Man
Background
From 1 April 2012, the Isle of Man Government will introduce a Unified Public
Service Pension Scheme that will make provisions for NHS staff, Civil Servants,
Fire Fighters and a number of other public sector workers on the Island. All active
and deferred members of the Isle of Man (IoM) Health Service Pension Scheme
(from both the IoM equivalents of our 1995 and 2008 Sections) will join the IoM
Unified Scheme on 1 April 2012. In addition, all existing NHS Scheme service
earned up to 31 March 2012 will be transferred into the Unified Scheme on that
date. The IoM Unified Scheme will not participate in the Public Sector Transfer
Club (“the Club”).
Currently, dedicated transfer arrangements apply to most members transferring
between the four separate Health Service Pension Schemes in England and
Wales, Northern Ireland, the IoM and Scotland. In the first instance, a member
leaving an NHS Scheme’s 1995 Section would usually be eligible to join and
transfer into another NHS Schemes 1995 Section. On payment of a transfer
value calculated in accordance with Club rules, the receiving NHS Scheme would
accept and adopt the member’s NHS Scheme service, pay and contribution
record from the sending NHS Scheme. In this way the member is treated as if all
their NHS service had accrued in the receiving NHS Scheme.
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Introduction of a non-Club Unified Scheme with different provisions to current
NHS Schemes means that it will not be possible for the Isle of Man to be part of
these dedicated arrangements in respect of members joining a UK Health
Service Scheme on or after 2 April 2012.
From that date, when taking up qualifying employment in England and Wales
(E&W), former members of the Unified Scheme will be eligible to join the 2008
Section of the NHS Pension Scheme. Subject to existing time limits, such
members will be able to transfer benefits across from the Unified Scheme on a
cash equivalent basis in the same way as members transferring from other
HMRC approved overseas pension schemes.
Former members of the IoM Health Service Scheme, who joined either the 1995
Section or the 2008 Section on or before 1 April 2012, will be able to complete a
transfer on the current basis as long as their application is within current time
limits (a transfer must be applied for within a year of joining).
Detailed changes
1995 and 2008 section regulations
3.6
Amending regulation 5
Amending regulation 5 alters the definition of “health service scheme” in
regulation R8 of the 1995 Regulations so that the Isle of Man Health Service
Pension Scheme is only included in that definition in respect of members whose
pensionable employment started in E&W on or before 1st April 2012. As
explained above, the net effect of this change is twofold. It means that dedicated
transfer arrangements do not apply to members joining the 1995 Section on or
after 2 April 2012. In addition, because this definition is used in regulations
governing who can and who cannot join the 1995 Section, eligibility to join the
1995 Section because of equivalent service in the IoM Health Service Scheme,
ceases on 2 April 2012.
3.7
Amending regulations 10(b) and 15(b)
Amending regulations 10(b) and 15(b) alter the definition of “corresponding
health service scheme” in Parts 2 and 3 of the 2008 Regulations so that the Isle
of Man Health Service Pension Scheme is only included in that definition in
respect of members whose NHS employment started on or before 1st April 2012.
The net effect of this change is that former members of the Unified Scheme,
whose NHS employment in E&W begins on or after 2 April 2012, will be eligible
to join the 2008 Section (regardless of any earlier IoM 1995 Section Service that
has been transferred into the Unified Scheme).
The dedicated transfer arrangements that allow former IoM 2008 Section
equivalent members to have a transfer of exact IoM service into the E&W 2008
Section are provided for under regulations 2.F.11(6) (calculation of transferred-in
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pensionable service) and 3.F.11(6) (calculation of increase to pensionable
earnings as the result of a transfer-in). Paragraph (6) of those regulations
provides for those arrangements to apply when a transfer value payment has
been accepted from “a corresponding 2008 Scheme”. This, in turn, is defined in
regulations 2.A.1 and 3.A.1 as being “a corresponding health service scheme the
provisions of which the Secretary of State has determined correspond to the
provisions of the 2008 regulations”. Because the provisions of the IoM Unified
Pension Scheme do not correspond to the provisions of the E&W 2008
Regulations, it means that dedicated transfer arrangements will also cease for
such members transferring from the Unified Scheme, without the need to make
any further amendments.
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