Doctors' and Dentists' Remuneration - 2025-2026 pay round: Scottish Government's written evidence

E. NHS Pensions and Total Reward

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

50. 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.

51. 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^[18] (the Act), scheme regulations, and Treasury regulations and directions made under the Act.

Retirement flexibilities

52. Following consultation with stakeholders and the wider public, the Scottish Government introduced an expansion to retirement flexibilities to include those with membership of the 1995 section of the NHSPS(S). This change meant that members of the 1995 section of the scheme could ‘retire and return’ to pensionable employment from 1 April 2023 and access partial retirement from 1 October 2023.

53. These proposals aim to support retention of senior doctors and dentists by allowing them to retire flexibly, providing the ability to claim some of their pension benefits and continue in the workforce in a way that suits work-life balance. The flexibilities can also provide a way to manage pension growth.

54. There has been significant uptake of these new flexibilities amongst the NHS workforce in general, with around one third of new retirement applications being claims for partial retirement benefits or members looking to retire and return.

Second phase of member contribution reforms

55. On behalf of Scottish Ministers, the Scottish Public Pensions Agency (SPPA) published a consultation on 23 May 2023 on changes to member contribution rates in the NHSPS(S) from October 2023. The outcome of the consultation was that a phased implementation of the reforms would be introduced over two years.

56. The changes to the contribution structure were necessary to ensure the correct level of contribution income was being received by the scheme, as required by HM Treasury. The employee contribution structure was also revised to be more suitable for the 2015 NHSPS(S), which is a career average revalued earnings (CARE) scheme, while aiming to maximise participation across all the workforce.

57. The second and final phase of the contribution reforms were introduced from 1 October 2024 and aim to rebalance the contribution structure by reducing the highest contribution rate and narrowing the range of contribution tiers. The contribution rate paid the highest earners, those earning over £72,656, is reduced from 13.7% to 12.7%. This brings the range of contribution tiers broadly in line with contributions rates in NHS Pension Schemes in the rest of the UK. As part of the first phase of reforms, introduced in October 2023, part-time doctors and dentists now have their contribution rates based on their actual pay rather than whole-time equivalent.

McCloud Remedy – Removing age discrimination from the NHS Pension Scheme

58. In 2015 the UK government made changes to most public service pension schemes, including the NHSPS(S). These reforms did not apply to members closest to retirement. In December 2018, the Court of Appeal ruled in the McCloud/Sargeant judgment, that this discriminated against younger members.

59. The government is removing this age discrimination from public service pension schemes. It is doing this, firstly, by moving all members to the reformed 2015 NHSPS(S) from 1 April 2022. Secondly, to put right, or 'remedy,’ the discrimination, members’ pensionable service in the 2015 NHSPS(S), for the remedy period (1 April 2015 to 31 March 2022), is being moved back into the legacy 1995/2008 Scheme. Members will then be given a choice at retirement to receive the pension benefits from the legacy or the reformed scheme.

60. All remedy eligible members will be provided with a Remediable Service Statement (RSS) by the scheme manager, ensuring that they have sufficient information to make an informed choice about which benefits they wish to receive for their remediable service.

61. The NHS Pension Schemes (Remediable Service) (Scotland) Regulations 2023 provide that active and deferred members will receive their first RSS by 1 April 2025. This RSS will give benefit information based on remediable service in the member’s remedy section of the legacy scheme and also for 2015 scheme equivalent benefits. Active members will then receive an RSS annually as part of their Annual Benefit Statement (ABS), known as an ABS-RSS. Remedy affected members have not received an ABS since 2022 because of the impact of the McCloud remedy.

62. SPPA initially planned to provide members with their first ABS-RSS by 31 August 2024. However, because of complexities of the McCloud remedy impacting on the delivery timeline, it was not possible provide ABS-RSS for remedy members by 31 August. SPPA are now working towards to providing ABS-RSS for remedy affected members by 31 March 2025. Over 120,000 active NHS members not affected by the McCloud remedy received an ABS by 31 August 2024.

63. For members subject to the McCloud remedy and affected by Annual Allowance (AA) pension tax, the scheme manager is required to recalculate AA tax to reflect members’ service now being in the legacy scheme for the remedy period. The growth (pension input figure) for the legacy (1995/2008) scheme will be revised to reflect the additional service in the remedy period. Affected members will be issued with a Remediable Service Pension Savings Statement (RPSS) for the tax years during the remedy period.

64. The 2023 tax regulations introduced by the UK government, modified existing pensions tax legislation to make a number of technical changes to the tax treatment of those impacted by the McCloud remedy. These regulations provided that members did not have report any AA charge for 2022/23 on their Self-Assessment Tax Return. The deadline for scheme managers to provide RPSS for the remedy period and 2022/23 - 2023/24 was extended to 6 October 2024.

65. Around 90,000 NHS members affected by the McCloud remedy have been identified as requiring an AA recalculation by 6 October 2024. SPPA has not been able to provide RPSS by the legislative deadline and continue to work to provide these statements by the end of the year.

66. The delay in providing remedy impacted members with ABS-RSS means that over the last two years members have not been able to see the value of their retirement benefits as part of their total reward package. The delay in the provision of RPSS has meant members have not been able to accurately understand their pension tax liability.

Pension Tax

67. A number of changes to AA and Lifetime Allowance (LTA) pension tax rules were introduced following the UK Spring Budget, effective from 6 April 2023. The increase in the AA limit from £40,000 to £60,000 and an increase in the tapered AA and taper thresholds, has supported staff retention by removing most senior doctors and dentists from the impact of AA pension tax. The AA tax limit has previously been identified as a barrier to senior clinicians remaining in workforce and from working more hours due to the risk of incurring a significant pension tax charge.

68. From 6 April 2024, further changes were made to the way open (career average) and closed (final salary) public service pension schemes are considered for AA purposes. Open and closed public service pension schemes for a given workforce are considered to be linked for the purposes of calculating AA charges. This will allow members of a public service pension scheme to offset any negative real growth in their legacy pension scheme for AA purposes against positive pension input amounts in the reformed schemes, thereby reducing AA charges that result from reformed scheme accrual.

69. Following the removal of the LTA tax charge from 6 April 2023, the LTA was fully abolished from 6 April 2024. While there still remains a tax-free Lump Sum Allowance, the abolition of the LTA should promote longer service and encourage continued pension saving without tax limits on lifetime pension savings.

70. Taken together, the changes to AA and LTA tackle one of the longstanding barriers to retention amongst senior doctors and dentists.

Impact on affordability

71. 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^[19] remains high at 93.1% at the end of Quarter 4 2023-24. This is also an increase of 2.4% against Quarter 4 2022-23 (90.8%). This figure is also more favourable on comparison to scheme participation rates for all NHS hospital staff combined which stands at 92%.

72. Participation amongst General Practitioners^[20] (GPs) increased to 87% as at 31 March 2024 from 79% at 31 March 2023. Most recent participation figures, as at 1 October 2024, stand at 87%. General Dental Practitioner (GDP)^[21] participation in the scheme stood at 83.6% as at 31 March 2024. This is an increase in participation of 1.7% on the previous year. Participation rates remain a regular consideration of the NHS Pension Scheme (Scotland) Advisory Board.

Number of doctors and dentists taking early retirement

73. There were 95 GPs and 27 GDPs who had taken early retirement between 1 April 2023 and 31 March 2024. This is a marginal increase on figures for the previous year (67 GPs and 22 GDPs).

74. 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.

75. Unfortunately, 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.