Review Body on Doctors' and Dentists' Remuneration 2023 to 2024: Scottish evidence

E. NHS Pensions and Total Reward

General Update

62. The NHS Pension Scheme (Scotland) (NHSPS[S]) continues to be an integral part of the NHS Scotland remuneration package and remains an invaluable recruitment and retention tool.

63. Occupational pension policy in general is reserved to the UK Government. Pension benefits and employee contributions in the NHSPS(S) are tightly constrained by a mixture of UK Government financial and legislative controls and benefits mirror that of the scheme in England and Wales. HM Treasury (HMT) consent is required for the Scottish Government to make changes to the scheme regulations.

64. Reformed public service pension schemes, including the NHS scheme, were introduced in 2015. The statutory framework for the schemes is set out in the Public Service Pensions Act 2013 (the Act), scheme regulations, and Treasury regulations and directions made under the Act.

Proposed retirement flexibilities and changes to pension rules regarding inflation

65. The Scottish Government recognises that some NHS Scotland staff who are approaching retirement might prefer more flexibility around their retirement options and the ability to continue in employment while claiming their pension. The Scottish Government therefore published a consultation on 22 December 2022 which proposes the introduction of new retirement flexibilities to the NHSPS(S) which would offer staff more options at the end of their careers, so that they can partially retire or return to work seamlessly and continue building pension after retirement if they wish to do so.

66. As well as giving staff a greater flexibility around how they take their pension benefits, these measures can also support patient care. If members of the NHS Pension Scheme (Scotland) are able to continue working longer but more flexibly in ways that suit both individuals and employers, then NHS Scotland will also continue to benefit from their skills and experience. This could provide an important boost to NHS capacity at a crucial time and help deliver essential care services.

67. In addition to the new retirement flexibilities, the consultation also proposes to address some issues in relation to Consumer Price Index (CPI) inflation and its impact on pension accrual for some members of the NHSPS(S). It is hoped that by taking action on these rules, there will be less likelihood that NHS staff will face annual allowance tax charges as a result of high inflation, which might otherwise lead to, for example, senior clinicians and GPs reducing or limiting their hours in the workplace or seeking early retirement.

NHS Covid-19 Recovery

68. As part of the Scottish Government's response to the Covid-19 pandemic, The Coronavirus Act 2020 introduced a range of measures to boost the available Scottish NHS workforce, including the temporary suspension of NHSPS(S) provisions which normally placed restrictions on retired NHS Staff returning to work in the NHS and continuing to receive their full pension.

69. The Act temporarily suspended 'the 16-hour rule' preventing staff who return to work after retirement from the 1995 Section of the NHSPS(S) from working more than 16 hours per week in the first four weeks after retirement. It also suspended abatement for Special Class Status holders in the 1995 Section, as well as the requirement for staff in the 2008 Section and 2015 NHSPS(S) to reduce their pensionable pay by 10% if they elect to 'draw down' a portion of their benefits and continue working.

70. These measures continue to allow skilled and experienced staff to return to work following retirement, providing vital additional capacity to help NHS Scotland respond to significant demands expected throughout the busy winter period and effect NHS Scotland's recovery post-pandemic.

71. In light of this, between 2 September 2022 and 19 September 2022 the Scottish Government consulted on extending the easements within the NHSPS(S) to 31 March 2023. The Scottish Government response to the consultation confirmed that the suspension of most of these rules would be extended to 31 March 2025. While the restrictions were originally introduced to support NHS Scotland's response to the pandemic, it was recognised that the recovery of the NHS, following the pandemic, continues to place significant demands on workforce capacity.

McCloud Remedy - Removing age discrimination from the NHS Pension Scheme

72. The reformed NHS Pension Scheme (Scotland) 2015 was introduced as part of wider reforms implemented by regulations made under the 2013 Act. As part of these reforms, public service pension scheme members within 10 years of retirement were originally given transitional protection, and so remained in their legacy pension schemes. Other members who were between 10 and 13.5 years from retirement were also given some protection, on a tapered basis.

73. In December 2018, the Court of Appeal found this protection to be discriminatory against younger members. This has become known as the 'McCloud judgment.' The UK government accepted the judgment applies to other public service schemes, including the NHS, and has set out how the discrimination will be remedied. This is known as the 'McCloud remedy.'

74. On 10 March 2022, the Public Service Pensions and Judicial Offices Act 2022 received Royal Assent. The main purpose of the Act is to support implementation of the McCloud remedy in the public service pension schemes. The McCloud remedy will be implemented in two phases:

75. Phase one, the prospective remedy, which involves moving all remaining active members of legacy schemes (members with protection) into the new schemes on 1 April 2022 so that, going forward, all accrual will be in the new schemes (and so all active members will be treated equally).

76. Phase two, the retrospective remedy, is implementation of the deferred choice underpin. That is, giving eligible members a choice between legacy scheme and new scheme benefits for service between 1 April 2015 and 31 March 2022.

77. SPPA consulted on regulations to deliver the prospective remedy between 26 November 2021 and 16 January 2022, and the regulations came into force on 1 April 2022. The regulations had the effect of closing the legacy 1995 and 2008 sections of the pre-reform scheme, moving all existing members into the 2015 scheme with effect from 1 April 2022.

78. The regulatory changes required to the NHSPS(S) in order to implement the retrospective remedy will be made by secondary legislation that must be in force by 1 October 2023.

Reform of member contributions rates

79. The SPPA published a consultation on 24 January 2022 on changes to member contribution rates in the NHSPS(S). The consultation sought views on the reform of the member contribution structure from 1 April 2022 and proposed the following changes to the structure:

• Change members' contribution rates so that they would be based on actual pensionable pay instead of members' notional whole-time equivalent pay
• Rebalance contribution rates by reducing the highest contribution tiers and narrowing the range of contribution rates.
• Change to the approach of increasing tier boundaries in line with the annual percentage pay award
• Phase in the member contribution structure over 2 years

80. The consultation closed on 27 February 2022 and SPPA published an interim consultation response on 3 March 2022. The interim consultation response confirmed that the introduction of the reforms was postponed from 1 April 2022. This delay reflected the immediate pressures on the take-home pay of NHS staff from 1 April 2022 and the impact of increases in National Insurance Contributions from the same date.

81. Having reviewed the consultation responses, it was also clear that proposals to rebalance the contribution rates by reducing the highest contribution tiers was an area of tension between: respondents who wish to see a flatter contribution structure, or single contribution rate, and those who have raised concerns around affordability and wish to see slower progress to narrowing the tiers, or retain to the current tiers.

82. The SPPA listened to the responses and the distinct lack of support for the proposed contribution structures presented in the initial consultation. Therefore, given the delay in implementation, this has allowed the SPPA the opportunity to consider the proposals further and to consult again with the NHS Pension Scheme (Scotland) Advisory Board ("the SAB"). A second consultation will take place early in 2023 and new member contribution rates are planned to be implemented from 1 April 2023.

2016 Employer Cost Cap Valuation

83. The affordability of the scheme for taxpayers and employers is managed through the scheme valuation process and the employer cost cap which was introduced to the scheme in 2015. The latest actuarial valuation undertaken for the NHSPS(S) was completed as of 31 March 2016.

84. The employer cost cap ensures that the risks associated with pension provision are not met solely by the taxpayer but are shared with scheme members. The employer cost cap is symmetrical where any downward breach results in a member's benefits being improved and an upward breach (outside a 3% corridor) of the cost cap requires member's benefits to be reduced. The initial assessment of the cost cap as part of the 2016 valuation indicated that there had been a downward breach of the employer cost cap, requiring member's benefits to be improved.

85. In January 2019, the UK government suspended the cost cap part of the valuations, due to uncertainty surrounding member benefits following the McCloud ruling. The cost cap part of the valuation has since been re-run following the UK Government's lifting of this suspension, with the Government Actuary publishing results on 6 May 2022 showing no breach of the employer cost cap.

86. Scheme valuations are conducted on a quadrennial basis, and the next valuation will be based on data at 31 March 2020. The Government Actuary's Department has collected the necessary data and will undertake the valuation following direction issued by HM Treasury and engagement with the SAB on scheme specific assumptions. Initial projections anticipate results in Spring 2023 with the final valuation expected to set employer contribution rates from 1 April 2024.

Impact on affordability

87. High participation in the NHSPS(S) suggests that the scheme remains affordable and a valued benefit for NHS staff. Participation in the pension scheme by Hospital Doctors and Dentists^[18] remains consistently high at 93.2% at the end of Quarter 4 2021/22 (up 0.3% against Quarter 4 2020/21) and compares favourably against scheme participation rates for all staff at 93.0%.

88. Participation amongst General Practitioners^[19] (GPs) remained at 85.3% at 31 March 2022. There is an indication that levels of GP participation fluctuates through-out the year as members opt in and out of the scheme, and a snapshot of participation in any given month may not accurately reflect total participation across the year. General Dental Practitioner (GDP)^[20] participation in the scheme stood at 81.7% in the scheme, down 0.2% on the previous year. Participation rates remain a regular consideration of the SAB.

89. Opt out Figures for the period 1 April 2021 to 30 September 2022 showed 254 GPs and 15 Dental Practitioners had withdrawn from the scheme. We are unable to identify the number of hospital doctors and dentists who have opted out because SPPA pension data does not distinguish between job roles only between "officer members" (those employed) and practitioner members (GPs and Dentists). When members opt out of the scheme, they do not always give a reason. Some may opt out of the scheme in one employment because they are already in the scheme in respect of another employment. There is also some indication that members have opted out of the scheme as a means to restrict their pensions growth against pension tax limits.

Retirement Trends and Pensions

Number of doctors and dentists taking early retirement

90. There were 81 GPs and 21 GDPs who had taken early retirement between 1 April 2021 and 31 March 2022 which was up on figures for the previous year (70 GPs and 14 GDPs). Current data indicates a similar overall trend with 86 applications received across both groups by Dec 2022.

91. The retirement application form does not request reasons why a member is taking early retirement so this type of detail is not held by SPPA. Also, SPPA would not be notified where a member takes early retirement and re-joins the workforce without re-joining the pension scheme. The pension data held by SPPA does not distinguish between job roles, so it is not possible to provide early retirement figures for hospital doctors and dentists.