The NHS is a big deal, probably the most important and revered institution in the UK. We'd be hard pushed to find anyone who would criticise (publicly at least) the notion of quality healthcare that is given on an equal footing to all, and free at the point of use.
Despite all the ups and downs of funding, political reorganisations and contractual wranglings; the basic principles behind the Service are as laudable and necessary today as they were in post-war Britain.
The main cause for celebration of the NHS is its wonderful people. The dentists, dieticians, doctors, drivers, housekeepers, midwives, nurses, office workers, paramedics, physios, porters, radiographers, and, yes, even managers are the Service's chief asset.
And it stands to reason that all deserve exceptional remuneration and pensions. As such, the NHS Pension Schemes (NHSPS) are also a big deal.
These schemes, established under law since the inception of the NHS, are organised into three separate arrangements covering England & Wales, Scotland and Northern Ireland.
NHSPS – Where are we now?
To get an idea of the scale involved, in England and Wales alone, it is useful to study the annual scheme accounts for the year April 2016 to March 2017.
This shows that:
- The NHSPS (E&W) has nearly 3 million members (of which 1.5m are active members paying towards the scheme and engaged in NHS work, nearly 900,000 are pensioners and about 600,000 are deferred members who are no longer paying into the scheme, but haven't started drawing a pension)
- Nearly 9,000 employers offer access to the NHSPS, although the vast majority (over 7,000) represent local GP Practices.
- The contributions made by members amount to £4.2bn per annum.
- In addition, the contributions made by employers (on behalf of members) is £6.2bn per annum.
- To pensioners, annual pensions amount to £7.7bn per annum are paid and retirees in that year received one-off tax free lump sums totalling an extra £2.2bn. That's a total pay-out of nearly £10bn.
- The excess of income over expenditure resulted in nearly half a billion pounds being returned to the central Government Consolidated Fund.
- In fact, since 2002 these excess payments have resulted in nearly £22bn being returned to Government.
As highlighted in the last two bullet points, the pension schemes are run on an "unfunded" basis.
That means that member and employer contributions are treated as part of Government income (just like tax) and pension payments are part of Government expenditure (just like NHS salaries or contractual payments).
There is no ring-fenced pension fund that receives contributions or pays out pensions. In the absence of a pension fund, member pensions are guaranteed by HM Treasury and secured by the fact that their promised pensions are written into law.
No Government has seen fit to change the law so as to water down the promises that have been made to NHS workers, although George Osborne came mighty close in 2010 when he decreed that annual uplifts to NHS pensions should be based on the less generous CPI measure of inflation, rather than the RPI measure that had been used before.
Despite the fact that no fund exists, the Pensions Schemes carry out actuarial valuations every four years to get an indication of the future cost of the pension benefits that have been promised and to put a present value on those future costs and work out what contributions should be paid.
The most recent actuarial valuation represented the position in 2012 and an updated valuation reflecting the position in 2016 is expected imminently.
At present in England and Wales, members collectively pay 9.8% of pensionable salaries, although the actual contribution rates are in the range of 5% to 14.5%, with higher earners paying more.
Employers pay the balance of the cost of the promise as worked out by the actuarial valuation. Currently this represents a payment of 14.38% of salaries.
Are pensions likely to change?
Another part of the valuation process involves ensuring that the cost of the pension scheme stays stable; and if any significant cost changes arise due to reasons that can be attributed to members (e.g. changes to life expectancies) then a process for changing the pension scheme would be enacted. Such change would work both ways with the scheme being made more favourable to members if costs reduce, or less favourable if costs increase.
There are a number of potential levers that could be pulled to change the pension scheme and bring costs back in line, with the possibility of a change to member contribution levels, to change the age at which pensions become payable or to change the level of pension that is built up by members. All potential changes should be equally valid in the process although, in the absence of any agreement, Government's default position would be to change the level of pension being built up.
The last decade alone has seen significant change to the NHSPS, with new pension schemes being introduced in 2008 and in 2015. The new cost management process means that future changes are always possible.
We will continue to represent the views of dentists in all of our discussions with Governments and officials in Whitehall, Holyrood and Stormont; with the intention of ensuring that a decent level of pension provision can be ensured for all NHS workers, for the next 70 years at least.
Just like the NHS, the NHS Pension Schemes will remain a big deal, and will be the subject of intensive scrutiny and debate.
BDA Head of Pensions
Pensions support for dentists
We work hard to ensure dentists achieve the best retirement savings possible and support our members in understanding their pensions options.
Our pensions team can advise you on pensions issues, including the occupational pension schemes provided by the NHS and HSC, as well asthe Higher Education and Armed Forces Section. We can also give you a general overview of the state pensions system and of personal pensions arrangements - if you are a BDA member, get in touch.