NHS Pension Scheme paid contributions: FOI release

Information requested

Until October 2023 contributors to the NHS Pension Scheme paid contributions in line with their Whole Time Equivalent (WTE) salary. This could lead to them paying higher contributions than others earning the same as them if their actual salary was in line with a lower contribution band.

Please can you share the following information:

1) When did this method of determining contribution rates start?

2) For each financial year since this commenced, please give the value for the difference in the value of contributions part-time members have made when contributing at WTE contribution rate vs actual salary contribution rate.

Essentially, how much more have part-time members paid when contributing at the WTE rate than they would if their contribution rate had been based on actual salary?

3) Please detail the cost to the scheme of the change of contribution rates from being based on WTE salary to actual salary for this financial year and any future projections.

4) Share any internal communications and discussions relating to the proposal to change contribution rates.

5) Share any documents from the Audit and Risk Committee relating to WTE vs actual salary contribution rates.

Response

1) When did this method of determining contribution rates start?

Prior to April 2008, NHS employees’ pension contributions were either 5% (for manual workers) or 6% (for non-manual workers) of pensionable pay. From 1 April 2008, tiered contribution rates were introduced where the applicable contribution tier was determined based on the member’s whole-time equivalent pensionable pay.

2) For each financial year since this commenced, please give the value for the difference in the value of contributions part-time members have made when contributing at WTE contribution rate vs actual salary contribution rate.

Essentially, how much more have part-time members paid when contributing at the WTE rate than they would if their contribution rate had been based on actual salary?

While our aim is to provide information whenever possible, in this instance the costs of locating, retrieving, and providing the information requested would exceed the upper cost limit of £600. This is because this information is not routinely extracted from our systems and would require to be collated, analysed and alternative contributions calculated. Under section 12 of FOISA, public authorities are not required to comply with a request for information if the authority estimates that the cost of complying would exceed the upper cost limit, which is currently set at £600 by Regulations made under section 12.

In situations where the upper cost limit is exceeded, it is normal practice for us to suggest that you consider reducing the scope of your request in order that the costs can be brought below £600. However, in this case, by narrowing the request to fewer financial years or a narrower cohort of members it is unlikely to meet the purpose of bringing the cost of compliance within the £600 limit. Therefore, we have not identified any viable options which could bring the cost of this request within the limit.

3) Please detail the cost to the scheme of the change of contribution rates from being based on WTE salary to actual salary for this financial year and any future projections.

In itself, the change in the contribution structure for part-time members will not incur a cost to the scheme.

As set out in Section 1 of the consultation document, the overall target member contribution yield is fixed at 9.8%. While the yield is a fixed percentage, there are a range of approaches that could be taken to ensure that 9.8% is collected from across the whole scheme membership. The simplest method would be to ask each member to contribute a flat rate of 9.8%. An alternative is to share out the 9.8% requirement across the workforce by charging a sliding scale of rates to members according to their pensionable earnings. The aggregate amount collected across members should then equate to 9.8%. This approach is known as ‘tiered contributions’ and is the method adopted across most public service pension schemes in the UK.

Employer contributions then make up the balance of the estimated cost of providing pension benefits to the scheme’s members.

The change of the contribution rates for part-time members to be based on their actual salary rather than their whole-time equivalent (WTE) salary is one element of the package of changes brought in to achieve the target contribution yield of 9.8%. The approach taken to meet the target yield is not expected to have any bearing on the ultimate cost of providing pension benefits to members or on the cost to employers, nor does it affect the value of each member’s benefits. However, without the package of changes brought in, the expected contribution yield would have continued to be below the 9.8% target, potentially leading to additional costs for the employers and ultimately the taxpayer.

Paragraph 4.12 of the consultation document sets out that, in isolation, changing the approach so that a member’s contribution tier is determined using their actual salary rather than their WTE salary, would reduce the overall member contribution yield by 0.5% (as many part-time members would pay lower contribution rates). Based on the 2022-23 financial accounts for NHS Pension Schemes (Scotland), total pensionable payroll was £6.9bn over the year. Therefore, the change noted above could, in isolation, have reduced the overall contribution income by around £35m had the changes to the structure of rates not been introduced.

4) Share any internal communications and discussions relating to the proposal to change contribution rates.

An exemption under section 29(1)(a) of FOISA (formulation or development of government policy) applies to the information requested in this question because it relates to the formulation of the Scottish Government policy on the design of the NHS Pension Scheme (Scotland).

This exemption is subject to the ‘public interest test.’ Therefore, taking account of all the circumstances of this case, we have considered if the public interest in disclosing the information outweighs the public interest in applying the exemption. We have found that, on balance, the public interest lies in favour of upholding the exemption. We recognise that there is a public interest in disclosing information as part of open, transparent, and accountable government, and to inform public debate. However, there is a greater public interest in high quality policy and decision-making, and in the properly considered implementation and development of policies and decisions. This means that Ministers and officials need to be able to consider all available options and to debate those rigorously, to fully understand their possible implications.

The outcome of the discussions on changes to the contribution rates was made public in two consultation documents: NHS Pension Scheme (Scotland): proposed changes to member contributions from 1 April 2022. Scottish Government consultation 2022 and NHS Pension Scheme (Scotland): proposed changes to member contributions from 1 October 2023. Scottish Government consultation 2023.

5) Share any documents from the Audit and Risk Committee relating to WTE vs actual salary contribution rates.

There was one document received by the Audit and Risk Committee that mentioned WTE vs actual salary contribution rates. This was the 2022-23 Annual Report and Accounts of the NHS Pension Scheme. This document is available at https://pensions.gov.scot/sites/default/files/2024- 01/NHSPSS_Annual_Report_and_Accounts_2022_23.pdf and a copy is attached.

About FOI

The Scottish Government is committed to publishing all information released in response to Freedom of Information requests. View all FOI responses at http://www.gov.scot/foi-responses.

FOI 202400399171 - Information Released - Annex

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