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.
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