Doctors' and dentists' remuneration (DDRB) review body - 2022-2023 pay round: evidence

E. NHS Pensions and Total Reward

General Update

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

53. 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.

54. 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.

COVID-19

55. The COVID-19 pandemic continues to place significant demands on the NHS in Scotland. The Coronavirus Act 2020 temporarily suspends provisions in the NHSPS(S) which normally place restrictions on retired NHS Staff returning to work in the NHS and continuing to receive their full pension.

56. The Act temporarily suspends 'the 16-hour rule' which prevents staff who return to work after retirement from the 1995 NHSPS(S) from working more than 16 hours per week in the first four weeks after retirement. It also suspends abatement for special class status holders in the 1995 Scheme, 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.

57. These measures are allowing skilled and experienced retired staff to return to work, providing vital additional capacity to NHS Scotland as it continues to tackle the pandemic, deliver the vaccination programme and implement the Covid recovery plan.

McCloud Judgement - Removing age discrimination from the NHS Pension Scheme

58. In February 2021, the UK government published its consultation response on proposals to remove the age discrimination identified in the transitional protections introduced as part of the 2015 public service pension scheme reforms. This is known as the "McCloud remedy"

59. The consultation response confirmed that members affected by the discrimination will receive at retirement a 'deferred choice' of which pension scheme benefits they would prefer to take at the point they retire. This means members will be able to choose to receive legacy (1995 or 2008) NHS pension scheme benefits or benefits under the reformed 2015 NHS Pension Scheme for service for the "remedy period" between 2015 and 2022.

60. The deferred choice will apply across the majority of the main public service pension schemes. Where members are already in receipt of their pension, they will be given a choice as soon as practicable.

61. It was also announced that from 1 April 2022 all NHS staff who continue in service will do so as members of the 2015 reformed scheme, regardless of age. This ensures all members will be treated equally.

62. The McCloud remedy will be delivered in two phases, prospective and retrospective, delivered through primary legislation and secondary legislation. The UK government is currently introducing primary legislation, in the form of the Public Service Pensions & Judicial Offices Bill, which is expected to receive Royal Assent in early 2022.

63. In addition to primary legislation, secondary legislation will be required to amend the NHS scheme regulations. SPPA published a consultation on changes to the NHSPS(S) in November 2021. These changes close the 1995 and 2008 schemes, ensuring that all members are treated as members of the NHS Pension Scheme 2015 from 1 April 2022. This is the first phase of the remedy.

64. The second phase of the remedy is the retrospective remedy, which will be consulted on separately. This second phase will move members back into the legacy scheme for the remedy period and allow a choice of benefits at retirement. Remedying the retrospective discrimination is particularly complex and further technical issues will be addressed in the consultation on retrospective scheme changes in 2022.

Review of member contributions rates

65. As a result of the McCloud judgement, the NHS final salary pension schemes will close on 31 March 2022 and all NHS staff will move to the 2015 NHS career average (CARE) pension scheme from 1 April 2022. The current member contribution structure is not appropriate for a CARE scheme because it bases contribution rates for part time members on their whole-time equivalent (WTE) pay. Also, the current tiered structure is designed for a final salary scheme where high earners benefit from improved career pay progression and get a proportionally better pension.

66. Members are collectively required to contribute 9.8% of their pensionable pay across the whole membership, this is known as the member contribution yield. For the last 3 years the scheme has been underperforming against the yield and has delivered around 9.6%. HM Treasury (HMT) prescribe that the scheme must deliver a 9.8% yield from 1 April 2022. Therefore, we are required to amend the member contribution structure for the NHSPS(S) from 1 April 2022 and increase contribution rates by 0.2% to meet the 9.8% yield.

67. In addition, a move to basing contribution rates for part-time members on their actual pay, instead of WTE, will result in part-time members paying reduced contributions. Around 35% of NHS staff in Scotland are part-time and therefore the reduction in contribution income from those staff will mean an additional increase of 0.5% in contribution rates across the membership is required to meet the 9.8% yield. Also, any changes to reduce the tiering in the current structure will also potentially impact on contribution rates for lower and middle earners.

68. We have consulted with the Scheme Advisory Board between April and November 2021 on a revised contribution structure and we will hold a public consultation on new proposed contribution rates early in 2022.

Impact on affordability

69. 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^[6] Hospital Doctors and Dentists has stayed consistently high at 92.9% at 31 March 2021 (up 1.1% compared to 31 March 2020) and compares favourably against scheme participation rates for all staff at 91.3%.

70. Participation amongst^[7] General Practitioners (GPs) has increased to 85.3% at 31 March 2021 (up 3.6% from 31 March 2020). There is an indication that levels of GP participation fluctuate 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.^[8] General Dental Practitioner (GDP) participation in the scheme was recorded as 82.0% at 31 March 2021 which is up from 75.3% in March 2020. Participation rates remain a regular consideration of the Scheme Advisory Board.

71. Opt out Figures for the period 1 April 2020 to 30 September 2021 show 175 GPs and 15 Dental Practitioners have 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.

2016 Employer Cost Cap Valuation

72. The affordability of the scheme for tax payers 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 at 31 March 2016.

73. 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 (outside a 2% corridor) results in a member's benefits being improved and an upward breach (outside a 2% 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.

74. However in January 2019, the UK government announced a pause to the cost control element of the 2016 valuations, due to the uncertainty around member benefits caused by the discrimination ruling relating to the McCloud case. The UK government subsequently announced in July 2020 that the pause had been lifted, and so the cost control element of the 2016 valuations could be completed. The Government set out that the costs of remedying the discrimination should be included in this process.

75. HMT valuation directions published on 7 October 2021, set out the technical detail of how the costs of remedy should be included in the valuation process. This will allow the Government Actuaries Department to finalise 2016 cost cap valuation and a revised assessment of the cost cap will be published in the valuation report for the NHSPS(S), expected in early 2022.

76. At the request of the UK government, in 2021 the Government Actuary (GA) conducted a review of the cost cap mechanism. The review was commissioned because of concerns that the mechanism was not operating in line with its original objectives. The GA's final report to HMT was published on 15 June 2021 and the UK government published a consultation in June 2021 based on the GA's three key recommendations. These recommendations were; moving to a 'reformed scheme only' design so that the mechanism only considers past and future service in the reformed schemes, widening the corridor from 2% to 3% of pensionable pay, and introducing an economic check. The consultation closed in August 2021 and the UK government announced it would be implementing these recommendations.

Retirement Trends and Pensions

Number of doctors and dentists taking early retirement

77. There were 70 GPs and 14 GDPs who took early retirement between 1 April 2020 and 31 March 2021 which is broadly similar to the numbers (63 GP and 19 GDP) who took early retirement in the same period last year. The reasons for early retirement are not requested on the application form so those details are 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.

78. Scottish Ministers continue to recognise the concerns raised by staff side unions, including the BMA, that the implications of pensions annual allowance and lifetime allowance limits are affecting the delivery of key health services. Pensions taxation is entirely reserved to UK Government, and although Scottish Ministers have pressed for change in this area there are limited devolved levers available to mitigate the impact. The reintroduction of a scheme to compensate those who have opted out of the pension scheme for pensions taxation reasons remain under active consideration. This however is not a permanent solution and would need to be based on strong justification. We will continue to engage with the UK Government on this matter and explore flexibilities that would encourage members to remain within the pension scheme. One such option that the UK Government previously examined was a 'flexible accrual scheme' which would allow members to stay within the overall pension scheme but manage their pension growth to suit their individual circumstances. We believe that there is further merit in considering such a scheme and would welcome moves from the UK Government to do so.