Beware the NHS pension annualisation booby trap

Nestled within the 2015 NHS pension scheme for England and Wales (officially named 2015 Career Average Revalued Earnings, or CARE (!)) was the new concept of annualisation of income to determine the employee’s pension contribution tier. Annualisation was not widely publicised or understood by GPs at the time. But now there is growing alarm as its implications become clearer.

GPs in meeting the following criteria will be part of the 2015 scheme

  • already a pension scheme member on 1 April 2012 with a birthday falling on or after 1 October 1965
  • joined the pension scheme since 1 April 2012
  • re-joined the pension scheme since 1 April 2012 after a break of more than 5 years.

For more detailed guidance on membership and protection arrangements for older members

Who is affected?

Annualisation applies if any GP has what’s known as ‘interrupted service’ during a pension year. The pension year runs from 1 April to 31 March and the following scenarios would count as a ‘break in service’ in pension terms

Leavers and joiners of the Practitioner Scheme

  • Any GP who joins the Practitioner Scheme after 1 April e.g. part way through the pension year. For instance, a newly qualified GP.
  • Any GP who leaves the Practitioner Scheme or retires during the pension year (e.g. before 31 March) who was already a pension scheme member on 1 April 2012 with a birthday falling on or after 1 October 1965.

Breaks in service for different types of GP

  • GP locums who have breaks of more than three months between locum posts
    • NB this is seen as a ‘break in service’ even if you are working as another type of GP during the three month ‘break’ - either as a partner (known as Type 1 practitioner in the NHS pension scheme) or a salaried GP (Type 2 practitioner*)
  • GP partners (Type 1 practitioners) and salaried GPs (Type 2) with breaks of more than one month between posts
  • GP locums on "maternity leave" or who are ill for over three months are considered as having a ‘break in service’.  This is not the case for Type 1 and Type 2 practitioners receiving maternity or sick pay and paying pension contributions who will not be annualised.

What is annualisation?

It’s a form of extrapolating part-time earnings to a notional whole time equivalent. Then, rather than using your actual earned income to determine which employee pension contribution tier rate, your ‘annualised’ pensionable income is calculated to determine your contribution tier.

How do I calculate my annualised pensionable income?

Brace yourself - as you will see, annualisation of your pensionable income for most GP locums will rocket you to the top contribution rate.

Here’s an example

  • Suppose Dr Helpful works just one session as a GP locum in a pension year and is paid a fee of £500. As this would be deemed as a break of more than three months between locum posts, this would be subject to annualisation.
  • To annualise this pay
    • Find your pensionable pay by taking 90% of the fee, divide by numbers of days worked and then multiply by 365 (who works 365 days a year!?)
    • This example gives you an annualised income of £164,250 and based on this you would have to pay employee contributions at a rate of 14.5%

And it doesn’t end there; if the locum in our example had another GP role that they were pensioning on the Practitioner scheme, perhaps as a part-time salaried GP or partner on a gross income of, say £40,000, this income would be added to their annualised locum income and the contribution rate of 14.5% would apply to all of their practitioner pay.

There are some further worked examples of how and when to calculate your annualised income on the completion notes of the GP locum B form.

While you’re there, note that the GP locum B form guidance ends with this pithy advice:

“To avoid having pay annualised (sic) GP Locums must perform Locum work every three months because any breaks of three months or more will result in pay being annualised and a higher tiered rate being applied.”

What impact would annualisation have on my pension contributions?

The eagle-eye amongst you will have noted that if you have to annualise your pensionable earnings from any GP locum work and are not already on the top tier rate of pension contributions, then annualisation will probably raise you there.

Taking our above example of Dr Helpful, working as a part-time employed GP with an annual earned income of £40,000 and carrying out a locum session at £500:

  • Based on actual earned income, the contribution rate tier would be 9.3%, costing around £3,762 in pension contributions a year.
  • After annualisation, their contribution rate becomes 14.5%, costing £5,865; an increase of nearly £2,000 a year for exactly the same pension benefit.

How will I find out if I have to pay more?

Good question. Given that in England the administration for any corrections for under or overpayments would be initiated by PCSE/Capita, it probably won’t be straightforward.

If you only carry out GP locum work

  • At the start of a pension year (from 1 April to 31 March), estimate your pensionable income and set your tier accordingly
  • But you’ll only know your true pensionable pay once the pension year ends
  • The emphasis is on you to report any discrepancy, so that your pension record and payments are up-to-date by the time you retire. As GP Locum B form says “If you have paid tiered contributions at the wrong rate, you must correct this.”
  • If you’re in England, the advice from PCSE is that you can start the process from their website by using the ‘Enquiries form’ on the GP Payments and Pensions page.
  • If you’re in Scotland and Wales, then you benefit from having access to local pension administrators to discuss this with.

If you’re a Type 2 Practitioner* - as a rule of thumb any GP who isn’t a solely a GP partner or solely a freelance GP locum:

  • There’s a Type 2 medical practitioner self-assessment form of tiered contributions to be completed by each 28 February (11 months after the pension year ending on 31 March)
  • Here’s some cheery encouragement from the NHS Business Service Authority in their guidance and completion notes to help you along:
    • “Every GP is legally required to pay the same rate of tiered contributions in respect of all their GP pensionable posts.
    • It is a condition of a GP’s NHS Pension Scheme membership that they proactively liaise with the relevant NHS organisations to ensure they have paid the correct tiered contributions ‘across the board’.
    • Failure to comply with the NHS Pension Scheme Regulations may result in pensionable pay provisionally set to zero for the relevant period.”
  • The Type 2 form is a spreadsheet into which you input dates of work and income from all your Practitioner roles. The spreadsheet then calculates your pensionable pay across all your roles, and applies annualisation if relevant to you.

Is it fair?

It could be argued that the NHS pension scheme, like the rest of western society, has to adapt to the aging population by reducing its benefits and increasing contributions to ensure the sustainability of the scheme. And, apparently, these changes are agreed with input from Trade Unions and employer representatives.

But, in the real world of the modern portfolio GP workforce, if ever a system were designed to further demoralise GPs, it would be this. Whether by accident or design, these rules penalise GPs who are on lower incomes, perhaps because of illness, or GPs who offer flexible, sporadic support to practices in need (see example above of a part-time salaried GP doing a locum session to help out). Also anyone joining the workforce partway through a pension year, like newly-qualified GPs.

In terms of GP recruitment and retention, it makes no sense to prop up the NHS pension scheme by using a bizarre set of rules to increase contributions from these valuable groups of GPs, disincentivising otherwise well motivated GPs to offer flexible sporadic support as locums or causing them to delay their entry into the workforce to align with pension years.

The BMA, being the official negotiators on behalf of the the profession, are working to rectify this. Sessional GP sub-committee deputy chair Krishan Aggarwal has been key in raising this issue and has produced some helpful updates, one of which is essential reading for Type 2 practitioners on the deadline for submitting Type 2 self-assessment forms by 28 February.

BMA on annualisation and Type 2 issues.

  • Annualising of 2015 scheme practitioner contributions
  • Capita and the NHS pension fiasco - what is going on?...Part 5 from Oct 2017
  • Type 2 forms and Annualisation - ARRGGGHHHH! Dec 2017.
  • A very important read if you’re a Type 2 practitioner (as a rule of thumb any GP who isn’t a solely a GP partner or solely a freelance GP locum)
    • Find out about the legal requirement to complete the Type 2 self-assessment form annually by 28 February, declaring your income from all your practitioner roles for the previous pension year.
    • So by 28 February 2018, you have to submit the Type 2 form relating to the pension year running from 1 April 2016 to 31 March 2017
    • Find out about the amnesty that the BMA have negotiated for older Type 2 forms - you are not alone if you did not realise that there has been a requirement to submit these forms since 2009/2010; but you do have to crack on and get up to date for the last couple of years.
    • Rather ambiguously, this article says “Don’t worry” if you’ve never sent these forms as there is “no risk to your pension” but your “pension record may not be updated”. We believe this means that though the money you sent has been safely paid in, if your pension record hasn’t been updated, the paperwork staking your claim to your share of the NHS pension won’t reflect your true entitlement. So an important thing to sort out.
    • Elsewhere, the NHS BSA warns that it’s a condition of NHS Pension Scheme membership to “proactively liaise with the relevant NHS organisations to ensure they have paid the correct tiered contributions ‘across the board’ and failure to do so may result in pensionable pay provisionally set to zero for the relevant period.”

What can you do in the meantime?

None of the current solutions to avoid the impact of annualisation on your employee contribution tier rate are satisfactory or sustainable. But here are some ideas:

  • Be aware that the pension year runs from 1 April to 31 March
    • So if you’re planning any change in roles or a break from your GP work, if at all possible, try to align it with a new pension year rather than changing within a pension year.
  • If you do GP locum work, if at all possible, try to carry out a locum post at least every three months. If not possible, think about whether the amount from session fees is going to be enough to offset the extra pension cost.
  • If you’re a Type 2 practitioner, avoid gaps between posts of more than a month (or try to straddle a longer gap across the pension year e.g. to take a six week break, take 3 weeks before 31 March and 3 weeks after).
  • Choose not to pension some GP locum work if you are at risk of annualisation - it’s difficult to write these words without seeing red. This is definitely the unfairest of all, and shows how far down the priority list the needs of GPs working flexibly, or joining or leaving the scheme during a pension year were when annualisation was allowed to slip through.

*Type 2 practitioner | as a rule of thumb any GP who isn’t a solely a GP partner or solely a freelance GP locum

Sara was a salaried GP for 4 years, and has worked as a locum GP since 2001 in over sixty different GP practices. As well as NASGP’s appraisal and revalidation lead, and mother to twins, she is also the brains behind NASGP’s Practeus platform.

Sara’s an avid reader, especially fiction, history and trains (yes, trains); loves walking, pilates and beans on toast with cheese.

9 Responses

  1. dr jewell
    Thank you for this depressing and demoralising article, the pertinent essentials of which, as you say, have sadly passed so many of us by. Can I ask how does a purely freelance locum work out their annualisation figures? They can't submit a Type 2 form, so what and how do they do this?
    • Sara Chambers
      It's grim, isn't it. If you think you might be affected by annualisation e.g. you've any of the so-called "breaks" described, then the article talks through "How do I calculate my annualised pensionable income?" From there, you can see what contribution tier this puts you on from the Tier tables - https://www.nasgp.org.uk/nhs-superannuation/ Does that help?
  2. locum in Wales
    Sara, you say that one of the solutions may be to 'choose not to pension all of you locum earnings', but doesn't the legislation say that we MUST include all of our earnings from all GP work? What if a payment is not received until after the deadline for submission of locum A/B forms to the Health Board, so the Health Board will not accept the contribution payment? Does this mean that we must pay an amount that we are not allowed to pay? How does one do that? I though that if we missed the deadline for LHB submission of contributions, then that work was deemed 'non-pensionable' pay? is there guidance that says that a GP Partner/Salaried GP MUST pension all their locum earnings as well? (or is it only the tiers that are affected? - but certainly I would not want to do extra work to increase my tier and contribution amounts if it wasn't going to increase my pension benefits as well, would I?
    • Hi David, there's a link here about how you don't have to pension all your work. Does that answer most of your question? www.nasgp.org.uk/question/superannuation-do-i-have-to-pension-all-my-nhs-locum-earnings (sorry can't make this a clickable link, but clicking on my name will take you to the link).
  3. Ginnie
    I am hoping ( probably naively) that I might still be in the 1995 scheme. This must be discriminatory against women as more of us are part time and also we are more likely to take maternity leave(!). As you put in the article I cannot think of a better way to demoralise us. You couldn’t make it up. Keep up the good work Nasgp.
    • Sara Chambers
      Hi Ginnie You've prompted me to realise that I haven't made clear who will be in the 2015 scheme. I'll update the article with this information. GPs in the following situations will be part of the 2015 scheme; already a pension scheme member on 1 April 2012 with a birthday falling on or after 1 October 1965; those who joined the pension scheme since 1 April 2012 or re-joined the pension scheme since 1 April 2012 after a break of more than 5 years.
  4. LC
    Hi - thanks for this article it's very informative. It says in the article that newly qualified GP's may be affected and I wanted to check whether this would be the case for me? I am a newly qualified GP, started regular locum work in August 2017 and would therefore have joined the practitioner pension scheme part way through the 'pension year'. However, prior to August I was a GP registrar and was contributing the pension scheme (so I will be contributing during the whole of the pension year ). Does anyone know whether I will be stung by annualisation?
    • Sara Chambers
      Hi LC I'm sorry to say that I think you will be stung for annualisation on your locum pay from August as you are joining the practitioner scheme after 1 April and, even though you were paying into the officer scheme as a GP registrar, this would still be seen as incomplete pension year for the practitioner scheme. The slightly good news is that, as the officer scheme is seen as separate, you will not have to apply the contribution rate you arrive from your annualised locum pay onto your GP reg pension. There's more information from the BMA here https://www.bma.org.uk/advice/employment/pensions/annualising-of-2015-scheme-contributions
  5. Sara Chambers
    Correction made regarding annualisation for maternity/sick leave for Type 1 and Type 2 practitioners following this clarification from the NHS Pensions Stakeholder engagement team "I have seen that annualisation article that is on the NASGP website and just wanted to clarify maternity pay as the article states “if you are on maternity leave for more than 3 months then pay will be annualised” . This statement is incorrect. If a type 1 or 2 is receiving maternity pay and is paying contributions on this maternity pay then there will be no break in service and the GP will not be annualised. GP locums are not entitled to maternity pay and therefore they will be the only ones affected by maternity leave of 3 months or more." Thanks and sorry for any confusion or concern this caused. BMA have also been updated.

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