Following on from parts one to five, which can be read here, we now come to part six, final pay controls.

Part 6: Final pay controls

Breaching the final pay control regulations in the 1995 section of the NHS Pension Scheme could lead to your practice being charged thousands of pounds. If you are not aware of the regulations and their implications, here is an explanation.

What are final pay controls?

The final pay control (FPC) regulations were introduced on 1 April 2014 to stop large pay-rises being awarded in the three years before retirement to boost someone’s pension.

Who is affected?

The FPC regulations apply to all officer and practice staff members of the 1995 section of the NHS Pension Scheme. This includes practice managers, nurses and some GPs who hold Mental Health Officer (MHO) status.

The regulations to do not apply to salaried GPs and GP partners because they are practitioner members of the pension scheme.

Individuals who are solely members of the 2008 section or the 2015 section of the pension scheme are not subject to final pay controls. This means fewer people will fall within the scope of the regulations as time moves on.

How is the charge calculated?

The charge assesses how much someone’s pay rose above an ‘allowable amount’ in the three years immediately before retirement. A figure is then calculated to establish how much extra pension and lump sum this excess pay creates each year. The figure is then multiplied by a factor to represent how long the pension might be in payment for, and that figure is then levied as a charge to the practice.

What is the allowable amount?

There is a strict and complex three-step process to calculate the allowable amount, based on a person’s pensionable pay and the application of the Consumer Price Index inflationary measure at the time the pension is calculated.

Follow this link for more information about how the allowable amount is calculated.

Are there any exceptions?

One of the very few exceptions to the FPC charge is pension benefits awarded on the death of a scheme member.

Since 1 July 2021 exemptions for practice manager and nurse partners (or other non-GP partners) were introduced to allow for the variable nature of partnership profits. An example could be when there is an increase in profits due to fellow partners retiring or reducing sessions. Another would be an improvement to profitability, with the caveat that the practice manager or nurse partner’s profit share percentage has not increased.

Who pays the charge?

The default position is that the employer picks up the cost and the invoice will automatically be sent to the GP practice. The charge has to be shown in the accounts as a practice expense.

The staff member’s contract of employment may shift the responsibility for any FPC charge onto the employee.

What are the reporting responsibilities?

If you believe one of your staff members is about to trigger an FPC charge when applying for their pension the practice should complete an ‘FPC1 form’.

It would also be wise to reserve for the cost in the practice accounts to ensure that the partners at the time the cost was triggered are the ones who bear the cost.

In most cases practices will look to take measures to ensure that a charge is not triggered in the first place.

How can I avoid these charges and are there any other traps I should be aware of?

The only way to avoid the charge altogether is to stay within these parameters for the final three years of a member’s service.

There are some nasty traps which can be easy to fall foul of:

• Ill health retirement – the FPC calculation will affect anyone having to access their pension earlier than anticipated due to ill health. This makes planning to avoid a charge much more difficult.
• Bonuses – if a pensionable bonus is given to a relevant staff member within the three-year calculation period then it may be enough to trigger the charge. Consider making any bonuses non-pensionable.

Working out if your practice is at risk of an FPC charge is complicated and requires a thorough grasp of the implications. Taking professional advice on the options available is advisable.

To read parts one to five in this series, click here.