The recently announced increase to GP pension contributions has caused concern among practice managers worried about the impact an additional 6.3% payment will have on budgets. After a consultation that ended in January, the Department of Health has confirmed it’s going ahead – so what will the impact on practices be?
GP pension contributions are increasing; Pulse estimates that the average practice could be hit with a hefty, £50,000 bill. From 1 April the Department of Health and Social Care will implement a new contribution rate of 20.6% for employers – and renew current employee contribution rates so that the same rates continue to apply beyond 31 March 2019. The government says the increase is driven, principally, by two factors: a reduction in the SCAPE discount rate, and substantial changes in member-related costs.
The proposals and draft regulations were subject to public consultation which began on 18 December 2018 and ended on 28 January 2019; representatives from professional bodies, general practice professionals and others, including academics, responded – in total, 1,500 responses were received.
The majority of respondents disagreed with the proposal to increase the employer contribution rate. Some respondents, however, did agree with the proposal, provided that the increase in employer contribution rate was funded. The availability of such funding was the main issue raised by respondents in the consultation report – specifically, the questions of whether the additional funding committed by the treasury would cover the higher pension costs faced by their organisations.
Many felt the increase was too high, and an unaffordable financial burden that would require employers, including GP practices, to review their workforce. Other respondents thought the increase would exacerbate the recruitment and retention issues they were currently facing – harming, not helping them, in their effort to make general practice an attractive career for new graduates.
Concerns were raised by GP practices that the new pension increases could compromise the sustainability of the partnership model and, ultimately, threaten the viability of their practices. Without appropriate funding, some suggested they would look at options to discontinue scheme membership for staff. Some practices were sceptical that additional funding would be available and sought reassurances that the rate increase would be fully reimbursed on a recurring basis – such questions raised still remain largely unanswered.
Commenting on the publication of the consultation response Deborah Wood, vice chairman of the Association of Independent Specialist Medical Accountants (AISMA), said, “Despite the widely-held concerns raised during the consultation about the financial impact of the 6.3% increase in employer pension contributions, the increased rate of 20.6%, plus a 0.08% administration charge, will be implemented from 1 April 2019.
“For 2019/20, a transitional approach is being applied so that 6.3% will be paid directly by NHS England to the pension scheme. Therefore, from a cashflow point of view, there will be no immediate effect on GP practices. In 2020/21 GP practices will pay the full 20.68% – but should have received funding to cover the extra cost.
“However, the tax impact on individual GPs, who are deemed to pay their own employer contribution for tax purposes, needs to be understood. If HMRC takes into account the additional 6.3% when determining exposure to the pension annual allowance and subsequent tax charges, then even more GPs could find themselves affected by annual allowance tax charges on a regular basis.
“It will be essential for GP practices to see a clear correlation in their funding allocations for the additional 6.3% being added to their budgets out of which they will then have to make the additional employer contributions on a regular monthly basis from April 2020 onwards.”
You can read the consultation response in full here.