Final BMA response to the NHS pension review in England and Wales
29 November 2006
The BMA has prepared and submitted a final response to the consultation on the NHS Pensions Review in England and Wales. For details of the response please refer to the letter below.
NHS Pension Scheme Review
NHS Employers
29 Bressenden Place
LONDON
SW1E 5DD
29 November 2006
Dear Sir
Response from the British Medical Association to proposals for changes to the NHS pension arrangements in England and Wales
Executive summary
- The BMA supports the main elements of the protection of current pension benefits and proposals for change, subject to the comments below where we have concerns and/or have suggested changes to some areas.
- The BMA considers that Government should be investing in public sector pensions, not creating ‘savings’ by restructuring benefits for current employees and raising contributions from members and future employees in the NHS to pay for the cost of pay reform in the NHS. In particular, employer contribution rates should not be capped.
- The BMA is concerned that any future contribution rate changes should be based on emerging experience and not on subjective assumptions.
- The BMA does not consider the proposal to base pensions for future NHS workers on a normal pension age of 65 as being conducive to longer working careers.
- The BMA notes the flexibility around retirement age without leaving employment for future employees and considers that this option should be introduced to the current scheme to aid retention of existing doctors.
- The BMA is deeply disappointed that the NHS Employers have not taken the opportunity of this review to extinguish the discrimination created in 1988 by introducing widowers’ pensions for future service only.
- The BMA is concerned that those members who reach the HMRC tax efficient pension thresholds, or who have past benefits affected by Revenue restrictions should be offered alternative remuneration to effect equal treatment.
- The BMA notes the lack of detail around the proposed pension purchase arrangement and suggests that this is amended to make it more meaningful but also that it runs alongside, rather than replaces, an amended version of the current added-years scheme.
- The BMA notes the proposal to offer choice of pension arrangement in the future and insists that accurate and adequate information is made available to members to enable an informed decision to be made.
- The BMA notes that the consultation document fails to address the pension implications facing a modernised NHS and insists that this vital subject is debated before recommendations are made to ministers.
- The BMA supports representations made by members who were promised protected benefits until 2013 under the previous proposals.
- The BMA is extremely concerned about the proposed timetable for delivery of the changes and the affect that this may have on current administration service.
The BMA represents doctors working within the NHS who are affected by the proposals to change the NHS pension benefits. There has been recognition and support for the protection of existing benefits and this represents a significant improvement over the previous proposals being made. We have received representation from our members that leads us to believe that doctors will still consider leaving the NHS earlier than originally intended if the proposals, particularly the contribution rate changes, are implemented without change. The BMA also has concerns over the future provision of medical services as it does not consider the proposals to be an incentive to starting and maintaining a career within the NHS.
In forming this response we have consulted widely within our membership. We have taken into consideration the wider impact on medical services in the public sector, including the Civil Service and Local Government. We have relied on feedback from BMA members following wide communication exercises which saw in excess of 60,000 doctors being sent direct communication. We have presented the main elements of the proposals to BMA committees and groups of doctors’ representatives. We have received many individual responses via e-mail and letter and there has been considerable e-debate within discussion forums.
This letter sets out the main areas of concern for BMA members who are employees within the NHS or General Practitioners participating in the NHS Pension Scheme.
Main areas of concern
Financial issues - The value of pensions is reduced
As the current financial restrictions and proposals stand, all of the additional costs occurring from imposed legislation, Government proposals and improved longevity are being funded by the staff of the NHS in a restructure of their pension benefits. In addition, increased pension cost resulting from recent pay reform is proposed to be passed directly to employees. The government has decided not to invest any additional money into these changes even though some of the agreed proposals that aid retention will increase costs but will provide a direct benefit to the NHS. We urge the project team to reconsider the level of employer contribution rate proposed to reflect commitment from the Government to meet the obligations arising from pay negotiations.
Increasing the normal pension age
Future NHS employees will join a scheme that provides them with full benefits only if they work until age 65. Whilst there are many ‘flexible retirement’ options included, this enforced extension to working lives is unwelcome and could be perceived as a barrier to NHS recruitment.
It is completely inappropriate to increase the pension age across the NHS without completing a full analysis of the impact that this will have. Prior to any move in pension age the BMA suggests that Government support its proposal with hard evidence that this will achieve greater retention of the older workforce. We would also request that the government also demonstrate why incentivising the workforce to work past 60 (as opposed to punishing them if they do not) would not achieve the governments stated aim of achieving longer working lives.
Contribution rates
The proposal to adjust, and in most cases increase, employee contribution rates has generated a great deal of concern amongst the medical profession. Whilst it is generally accepted that the proposed structure flattens the amount of cross-subsidy across the scheme and more broadly matches benefit value to contributions paid, there is a great deal of mistrust around the proposed thresholds and rate structure. We note that the underlying data used to inform discussions is inadequate to be wholly relied upon. This will need to be kept under constant review in the future to ensure that this structure remains appropriate as better data emerges.
The BMA does not accept that employer contribution rates should be capped.
Special Class and Mental Health Officer Status
The BMA recognises the joint recommendation from the Review partners and insists that this is recognised by Ministers. It is not within the scope of this review to change the pension terms that were agreed in 1995 for these groups of staff. The number of staff who benefit from these rights is reducing over time. During the Review period to date the BMA has received a continuous stream of correspondence from members with this status advising that they would withdraw their services from the NHS should these benefits be adversely changed or withdrawn. The BMA supports these members, and other NHS employees with special rights, entirely.
Retirement flexibilities
The inclusion of a number of measures that allow flexibility, protection and choice towards the end of a working life is accepted as being a positive incentive to lengthening an NHS career. It is extremely disappointing that one of the major changes (and one that is enshrined in HMRC primary legislation) will not be extended to the current workforce, namely, being able to take pension without leaving employment. Whilst we understand the cost issues that this restriction seeks to solve we do not feel that sufficient analysis of alternative options has been carried out and would seek to continue working with the NHS Employers Organisation to resolve this vital area for the retention of the current workforce.
Pre 1988 benefits – widowers and other survivors
Female doctors are only able to have service since April 1988 considered for survivor benefits. We have long campaigned for a removal of this arbitrary discrimination. NHS members of either sex have paid the same contributions and yet those female members who have served since before 1988 receive no spouses benefit for this service. Whilst we welcome the extension of provisions for same sex partners through EU legislation and the proposal to extend survivor benefits to unmarried partners (subject to definition), we are extremely disappointed that the Government has not taken the opportunity of redressing this situation during the review to enable all NHS scheme members to have all their service considered for partner benefits. We will continue to press for this to be corrected retrospectively when proposals are made to ministers.
Members affected by Revenue limits.
The BMA represents some members who could be adversely affected by Her Majesty’s Revenue and Customs (HMRC) restrictions on tax efficient pension benefits. These members may feel that removing themselves from the workforce is preferable to paying penal tax rates. The NHS cannot afford to lose such experienced people and must seek to retain these staff through the introduction of an employer funded pension arrangement that removes any additional taxation cost from the doctor.
Current doctors who have been restricted from pensioning their full income or service owing to the HMRC earnings cap and scheme service restrictions should have the opportunity of paying past contributions now that these will be removed. For some this could make a considerable difference to their retirement income levels. To ensure equal treatment, employers will need to pay their percentage. There are other possibilities of resolving these issues and the BMA notes that the consultation document is incomplete by not including these. It urges Government to consider options for these affected staff with immediate effect. The BMA notes with interest that for some select groups within the UK concessions have been agreed with their public sector employers. The BMA would wish to work with Government to resolving these issues and to investigate options for salaried staff whose benefits exceed the lifetime allowance.
Added years and pension purchase
We note the proposal to withdraw new added year contracts replace these with a pension purchase arrangement. Added years provide a simple method for those with missing or reduced service to replace pension rights. As costs for these benefits are met by the member we consider that it would be possible to adjust the payment factors to reduce the risk to the scheme that has been mooted exists in the current arrangements.
We welcome the additional savings method proposed with the pension purchase arrangement with the intended Government guarantee but are concerned that the detail around this proposal is still emerging during the period of consultation. We strongly feel that the proposed maximum level is too low and should be increased to £20,000. Recent discussions in the Technical Advisory Group have identified that this benefit appears to be very complicated and administratively difficult. It is also noted that the Government is taking on the investment risk, and proposing to include insurance benefits in the event of ill health or death before the contracts are completed. These areas were previously cited as being reasons for replacing added years contracts.
Our preference would be to see an amended, much more flexible, added years arrangement continuing to exist alongside the proposed pension purchase product to enable more choice of retirement planning for members. This would better meet the PSF agreement that new employees would all be able to retire at age 60 by paying extra contributions.
Transfer options
The BMA notes the proposal to allow existing members to choose to enter the proposed new scheme.
We are extremely concerned that the information needed to make this vital decision will not be available for some considerable time after the new scheme is proposed to start. The need to have sufficient detail of the proposals is understood, as is the need for accurate data to be held by the administrators but our worries extend to include the fact that there will be some members who wish to have the benefits of the new scheme as soon as they are available. To this end we would like to propose that individuals who so wish are able to exercise a personal decision to move to the new scheme immediately it becomes available. Supporting information, in the form of benefit statements, must be available to support these members.
We would further insist that any doctor who makes a decision based on information that is subsequently found to be inaccurate, will have the opportunity to remake that decision based on accurate information.
It will be necessary to provide sufficient information and time to enable every member to make an informed decision.
Extending coverage of the NHS pension scheme to other providers of NHS Healthcare
In the previous consultation document on the NHS pension Scheme review the following question was asked;
The Review partners would welcome views on the consensus across NHS and private sector employers and staff representatives that scheme coverage should be extended, as proposed in 8.90–8.96, for both the new and existing schemes. Views may also inform the wider debate on public service scheme coverage.
The current consultation document is entirely silent on this issue and we see this as a vital omission that should not have occurred. The debate around extending scheme coverage must be re-introduced during consideration of responses and before recommendations are made to Ministers.
Protection for those previously protected
Our members have made it clear to us that these proposals are better than the previous government position on public sector reform, however, there are a large number of members who will now be affected that were previously protected from detrimental change by the Governments proposal not to change their benefits until 2013. In line with their responses we ask the review team to consider whether this protection can be offered for members who would then not see any change in benefit provision or cost until 2013.
Ability to deliver the proposed changes
The BMA is extremely concerned that the proposed timetable envisages a new pension scheme operating within 2007. We do not consider this to be sufficient time to enable the discussions around the responses to these proposals and then revised proposals to be put to ministers, ministerial decisions, regulation drafting and consultation and then the appropriate administration and communication proposes to be developed and delivered. In addition to the new scheme it is proposed to make all the proposed changes to the existing scheme by April 2008.
We are aware that the current administration of the NHS scheme is failing to meet service standards and is overwhelmed with backlog cases requiring calculation or re-calculation.
The risk of the whole process failing to deliver is very high.
Finally, we ask for better communication and flow of information between NHS pensions in England and Wales, Scotland and Northern Ireland and a simpler process for those who choose to move between Nations to keep their pension benefits together.
Yours sincerely
Dr Andrew Dearden
Chairman
BMA Pensions Committee