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An update on final pay controls – it’s good news

by in Accounting, Pay

In August 2020 specialist medical accountant James Gransby* wrote an article for Practice Index about the NHS Pension Scheme final pay controls and how to avoid them. A recent government announcement about the rules offers some great news for practice managers. Here James explains that although things have moved on since August, it’s still no time for complacency.

As a reminder, final pay control charges can arise where certain pension members receive a pay increase in their final three years before retirement above an ‘allowable amount’. This is a mechanism which was introduced in 2014 to catch anyone trying to manipulate the system for those in the Officer scheme of the 1995 section of the NHS Pension Scheme (mainly practice managers and nurses – GPs are unaffected).

Many practices were caught by surprise by this charge, with over 20% of practices affected. Practice manager partners in particular have been at heightened risk due to the variable nature of profits they receive as partners (in contrast to practice managers working as employees).

What has changed?

A consultation was launched in January 2021 which very recently reached a conclusion.

The consultation proposed amendments to the 1995 Regulations to:

  • increase the allowable amount from Consumer Price Index (‘CPI’) plus 4.5% to CPI plus 7%
  • include further exemptions to the final pay control regulations

Both aspects were passed. The further exemptions may see a large number reduce their charges down to £nil.

Pensionable pay can now increase by an allowable amount of 7% plus CPI instead of 4.5% plus CPI. For some practices the implementation of this change in threshold will remove their charge completely. For others at the very least it will reduce the scale of any charge previously suffered.

An exemption has also been included which would exclude pay increases that have resulted from a promotion on the basis of fair and open competition. This exemption could well see the removal of some of the more significant charges where it can be successfully argued that the promotion process met these new criteria.

Finally, an exemption has been included such that non-GP partners will be exempted from the charge in circumstances where their profit share ratio increased purely as a result of other partners retiring or reducing sessions. This relaxation partly came about due to the consultation response from the Association of Independent Specialist Medical Accountants which was listened to and acted upon. Non-GP partners will also be exempted from the charges when there was simply an increase in practice profits in the final three years of partnership.

Next steps

In summary this all represents good news for GP practices and there are two important messages for you to consider for your practice:

  1. Have you received a final pay control charge since 1st April 2018?

If the answer is yes then you must act within a six-month window from these rule changes coming into force to have your charge re-assessed under these new regulations.

  1. Practices should ensure they remain very aware of the reformed rules going forward.

The relaxations will benefit many, but there will still be cases of charges and people being inadvertently caught. These rules should continue to be considered during every salary review process. Non-pensionable bonuses remain a good option for remunerating staff where additional reward is merited as it is only pensioned income which gets included in the calculations.

The number of practices caught will certainly reduce, but final pay controls have not gone away. Refresh your memory with a quick review of the August article which, together with this update, should keep you on track.

*James Gransby is Vice Chairman of the Association of Independent Specialist Medical Accountants

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2 Responses to “An update on final pay controls – it’s good news”
  1. Avatar
    debra wheatley Says:

    Thank you for this update. Is there a reference or place that we can evidence confirmation that this has been passed and is now in place. I was advised that whilst the consultation has taken place it is not finalised. As someone who will be subject to pay controls (although may benefit from the exemption) I really need to know as I retire in 10 days.
    Thank you. Debbie Wheatley

    Reply

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