Nobody writes about the NHS pension scheme and you don’t see it featuring in PLSA and other pension events.
That is because it generates precious little profit for the private sector. So here is a brief description (thanks Wiki).
The NHS Pension Scheme is a pension scheme for people who work for the English NHS and NHS Wales. It is administered by the NHS Business Services Authority, a special health authority of the Department of Health of the United Kingdom. The NHS Pension Scheme was created in 1948.
The NHS Pension Scheme is made up of the 1995/2008 Scheme and the 2015 Scheme. From 1 April 2015 all new joiners, without previous scheme membership, join the 2015 Scheme automatically. Members prior to 1 April 2015 retain rights to remain in the 1995 or 2008 section of the existing scheme.
The NHS Pension Scheme has 1.35 million members and 650,000 members actively contributing.
The benefits and conditions vary according to the type of worker and the dates of their service; from 2008 the “Normal Retirement Age” changed from 60 years to 65 years while the proportion of pay upon which a pension is based was increased. The benefits are index-linked and guaranteed. They are based on final salary (members who joined before 1 April 2008) or average salary (members who joined after 1 April 2008) and years of membership of the scheme. There are no administration costs. Members can increase their contributions if they wish to get larger benefits (within certain limits).
As of 2016, the tiered employee contribution rates start at a 5% rate increasing in 7 steps to 14.5% on income above £111,337.
If the NHS pension scheme was funded, it would be the largest funded pension in Britain, it might even rival the mighty CALPRS in the States to be the largest funded pension in the world. But it isn’t funded and therefore doesn’t trouble the asset management scorecard.
To the lay-reader, a pension scheme that serves 1.35m of the UK population would deserve considerable attention – but the UK pension industry has but one master – the fund management industry.
Which is why bottom-up engagement is more likely than top-down debate. It is why the most vigorous discussions on the NHS scheme (and by extension all state sponsored unfunded pensions) are on social media.
Pension problems for doctors is a problem for the NHS
We should not confuse the apathy of the pension (fund management) industry toward the NHS pension scheme with its potential consequences for the nation’s health service and the nation’s health. As Nitin Arora points out in his blog (published alongside this), the issues Doctors have need immediate address.
The problem the NHS has is that we have most consultants working ~20% more than full time, with anything over 10PA being non-pensionable; and lots of departments rely on consultants doing extra lists.This is not conducive to efficient tax planning for individuals.
When people realise that their extra 20k of income results in a 12k tax bill, and potentially 3-5k of ‘scheme pays’ they may elect to stop doing this extra work.
Nitin call for action is deliberately targeted at people who care about the health service, whether within or without.
We as custodians of the NHS need to look at the bigger picture, and alert the government to the impending crisis. The taper, AA and LTA together, are going to drive an already demoralised workforce to cut working time. At this time of an overstretched health service, and staff shortages, this would be a disaster.
Why the NHS is not the USS
There is no crisis of funding at the NHS Pension Scheme, there is no question that the NHS pension scheme will close for future accrual, there are no arguments to be found about self-sufficiency. This is because the balance between Government funding (via taxation) and member contributions is maintained by the Government Actuary without the usual hullabaloo around investment strategy.
The business of the NHS pension scheme is in providing pensions and this singular intent is recognised by its members, I am not aware of any substantial challenge to the Scheme (though clearly there is an issue around the provision of support for members in the decisions they now have to take.
The issues around the NHS pension scheme relate to tax. The suspicion is that the already burdensome membership cost to higher earning members is increased further by progressive taxation . We are used to the pension system robbing the poor to pay the rich – (the regressive alternative), but with the taxation of high-earners pension increases running at as much as 67.5%, there are now serious reasons for Doctors do the “hokey” – the member’s phrase for going “in-out” of the scheme as tax liabilities dictate.
The main difference between USS and NHS is that the NHS is making membership untenable for members while UUK argues that USS membership is untenable to employers.
Giving members a voice.
What I find interesting about the eruption of interest in the NHS Pension Scheme – is that it is happening on twitter. Twitter also provided the platform for debate on USS and Facebook was the platform members of the British Steel Pension Scheme (BSPS) use to understand their “time to choose”.
What is interesting is the attitude of the unions to the mobilisation of their members in these self-help groups (and threads). At BSPS, there was no involvement, at USS, the UCU has been heavily involved in the debate, we have yet to see the extent to which the BMA and other NHS unions will encourage the debate on an open platform or try to confine it to in-house publications and forums.
In my view, social media has become the forum where pension policymakers have most to learn. If I was HMRC or the Treasury (especially GAD) , I would be exploring the different views expressed on the threads that Nitin Arora and others have created.
We have yet to explore the full functionality of social media in assessing opinion. Polls can play an important part in this and are as yet virtually unused as a way of testing the water.
What social media has is scope and – using a limited number of hashtags, social media can provide scope and immediacy to conversations that demand quick and decisive conclusions.
So I look forward to the NHS Pension Scheme debate being conducted in public, as it is today. It is far more healthy for doctors and other members to share their grievances with a wider audience, than be confined to the pages of Pulse.
This highlights the perils of using AA TaperedAA and LTA together. The previous guest blog by Nitin Arora also highlights the disaster of members not knowing they have a tax liability as they cannot get the information they need about the size of their Pension Input Amount in a timely fashion. So this often means they cannot use scheme pays as they miss the deadline to ask for it. Also anyone exceeding the Tapered Allowance cannot use Scheme pays unless that scheme offer voluntary scheme pays. Everything is so complicated with the current system of allowances and even those who understand how the allowances operate still cannot calculate the size of their PIA and the size of their yax liability This convoluted system is down to the political parties in power being too cowardly and self interested to increase income taxes and other direct taxes to raise the revenue they need. The NHS needs the added hours these doctors work in order to function People who earn loads and companies who.make billions of profits need to pay more taxes. But they need to do so in a way that is fair and where they can calculate how much tax to pay. The purpose of A day was supposedly to make things simpler. This car crash is caused by making things too complicated for scheme admistrators and members alike.
May I suggest that in any open public debate about unfunded public sector pensions, Neil Record’s “Sir Humphrey’s Legacy” should be included in the debate? https://iea.org.uk/publications/research/sir-humphreys-legacy-facing-to-the-cost-of-public-sector-pensions
Maybe but it’s probably not right. The last large scale investigation into public sector pensions was of course Hutton. and both he and the Public Accounts Committee calculated that the total cost of public sector pensions would be 1.4% of GDP with no changes to schemes. (of course schemes were made much worse and therefore cheaper shortly after). This represents amazing value for the many public servants who have sacrificed much of their personal and family life to to provide the services we depend on in our time of need.
Henry, I always find your thoughts on what taxation is extremely abrasive.
“We are used to the pension system robbing the poor to pay the rich”. Steady on.
Tax is something that is appropriated from gross earnings/income or profit. Those earnings belong to the individual, not the state. Therefore if anything taxation is repeated theft from the individual.
Of course it isn’t theft in the legal sense because we are becoming progressively more used to government interference and garnishing of salaries to pay for ludicrously expensive public ventures. The highest earners already pay the most income tax (in absolute £ amounts) compared to all other income groups.
The NHS pension scheme in it’s current format needs to end.
Just over a half of government expenditure is on the NHS and state benefits alone and it is not affordable. I’m optimistically hoping that my the figures in my tax statement include funding the NHS pension but Christ only knows.
Consider the present ratio of earners to retirees and think what this will be in 20, 30, 50 years time.
What typically happens with inflation-linked promises? Who’s going to pay for that promise? The pool of tax money is not infinite and the long-term projection for tax must surely be that it will increase.
The tax burden falls on the generation that is alive in 20, 30, 50 years time and it is them that will suffer in real terms.
You might find Henry that when Ollie is trying to prioritise his expenditure, how much can he actually afford to away for his retirement at the moment? Do you think kids in the next generation will be able to save more or less than him?
As for companies making up ‘the deficit’, this doesn’t make sense in the long-term. Companies provide employment and benefits for their employees. Radical increases to corporate taxation will be a massive disincentive to trade in the UK, meaningful employment, company benefits etc. Without this income, individuals not in the privileged position of being in Teflon-coated government roles will not be able to pay for basic necessities never mind pension contributions. Eventually, of course, this will affect the government as it can only function by parasitically feeding off the private sector.
It seems that the panic button of “Tax More” is always immediately smashed without proper consideration of the consequences. Especially by those who will likely not face into the challenges of those entering employment just now.