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Consultation on increases to NHS pension scheme contributions launched

29th July 2011

Health Secretary: “Proposals will protect the lowest paid”

The Department of Health today launched a consultation on proposed changes to the level of contributions made by NHS Pension Scheme members towards their pension.

It follows plans set out in the Spending Review 2010 to secure £2.8bn savings per year by 2014/15 through increasing public service employee pension contributions by an average of 3.2%, phased in from April 2012.

The consultation document published today sets out proposals for increased employee contributions to the NHS Pension Scheme in 2012/13 only. This represents around 40% of the total contribution increases expected by 2014/15. Proposals for increasing rates in 2013/14 and 2014/15 and the wider Hutton agenda will be subject of further discussion with trade unions.

Under the proposals, the lowest earners would be protected. Those earning less than £15,000 on a Full Time Equivalent basis will pay nothing extra. Almost all newly qualified healthcare professionals would only pay 0.6% more towards their pensions in 2012/13. Contributions increases would be greater for the highest earners.

The proposed increases in 2012/13 are approximately the same amount that had already been agreed by the Unions under the ‘cap and share’ arrangements set out in the pre-budget report 2009.

Health Secretary Andrew Lansley said:

“What will not change is that the NHS pension will remain one of the very best available, providing a guaranteed pension level for all employees – something that very few private sector employers still offer. We will also completely protect the pensions people have already earned. None of the rights people have accrued will be affected.

"However, Lord Hutton made it absolutely clear that there needs to be a fairer balance between what employees and taxpayers contribute to public sector pensions. With people living longer and healthier lives, the status quo is untenable and unfair. It is entirely reasonable that people pay more to receive the benefit for longer.

“The proposals we are setting out today will protect the lowest paid in the NHS. Those earning less than £15,000 will pay nothing extra towards their pensions and a nurse earning £25,000 a year would pay £10 more a month in 2012/13. The top earners in the NHS would be expected to contribute much more. A consultant earning £130,000, for example, would contribute £152 more a month.”

Examples of how the proposed changes could affect individual members include:

As a healthcare assistant working full-time earning £15,000 a year:

  • You would pay no extra for your pension.
  • In 2012-13 you will continue to contribute 5% compared to the current employer contribution of 14%.
  • This means that for every £1 you contribute, the employer contributes £2.80. For your overall yearly contribution of £750, your employer pays £2,100.
  • Moreover, because your contributions are tax free your effective contribution rate is 4% which is equivalent to £600 per annum
  • If you are in the 1995 section of the pension scheme then for this, after you retire, you will receive a pension, for this you will earn pension of £188 per year and a tax free lump sum of £563 payable at age 60
  • If you are in the 2008 section of the pension scheme then for this, after you retire, you will receive a pension of £251 per year, with the option to exchange some of this for a tax free lump sum, payable at age 65.

As a nurse working full-time earning £25,000:

  • In 2012-13 you will contribute 7.1%, compared to the current employer contribution of 14%.
  • This means that for every £1 you contribute, the employer contributes £1.97. For your overall yearly contribution of £1,775, your employer will pay £3,500.
  • But because contributions are tax free your effective contribution rate will be 5.7%, equivalent to £1,425 per annum. This represents an increased personal contribution in 2012/13 of £10 per month after tax relief.
  • If you are in the 1995 section of the pension scheme then for this, after you retire, you will receive a pension, for this you will earn pension of £313 per year and a tax free lump sum of £938 payable at age 60
  • If you are in the 2008 section of the pension scheme then for this, after you retire, you will receive a pension, for this you will earn pension of £417 per year, with the option to exchange some of this for a tax free lump sum, payable at age 65.

As a scientist working full-time earning £30,000:

  • In 2012-13 you will contribute 7.7%, compared to the current employer contribution of 14%.
  • This means that for every £1 you contribute, the employer contributes £1.82. For your overall yearly contribution of £2,310, your employer will pay £4,200.
  • But because your contributions are tax free your effective contribution rate will be 6.2%, equivalent to £1,860 per annum. This represents an increased contribution in 2012/13 of £25 per month after tax relief.
  • If you are in the 1995 section of the pension scheme then for this, after you retire, you will receive a pension, for this you will earn pension of £375 per year and a tax free lump sum of £1,125 payable at age 60
  • If you are in the 2008 section of the pension scheme then for this, after you retire, you will receive a pension, for this you will earn pension of £500 per year, with the option to exchange some of this for a tax free lump sum, payable at age 65.

As a manager working full-time earning £60,000:

  • In 2012-13 you will contribute 8.5%, compared to the current employer contribution of 14%
  • This means that for every £1 you contribute, the employer contributes £1.65. For your overall yearly contribution of £5,100, your employer will pay £8,400.
  • But because contributions are tax free your effective contribution rate will be 5.1%, equivalent to £3,060 per annum. This represents an increased personal contribution in 2012/13 of £60 per month after tax relief.
  • If you are in the 1995 section of the pension scheme then for this, after you retire, you will receive a pension, for this you will earn pension of £750 per year and a tax free lump sum of £2,250 payable at age 60
  • If you are in the 2008 section of the pension scheme then for this, after you retire, you will receive a pension for this you will earn pension of £1,000 per year, with the option to exchange some of this for a tax free lump sum, payable at age 65.

As a consultant earning £130,000:

  • In 2012-13 you will contribute 10.9%, compared to the current employer contribution of 14%
  • This means that for every £1 you contribute, the employer contributes £1.28. For your overall yearly contribution of £14,170, your employer will pay £18,200.
  • But because contributions are tax free, your effective contribution rate will be 6.5%, equivalent to £8,450 per annum. This represents an increased personal contribution in 2012/13 of £152 per month after tax relief.
  • If you are in the 1995 section of the pension scheme then for this, after you retire, you will receive a pension for this you will earn pension of £1,625 per year and a tax free lump sum of £4,875 payable at age 60
  • If you are in the 2008 section of the pension scheme then for this, after you retire, you will receive a pension, for this you will earn pension of £2,167 per year, with the option to exchange some of this for a tax free lump sum, payable at age 65.

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