The Department of Health has announced a freeze on pension contributions for more than half a million lower-paid NHS staff.
The deal, which affects 630,000 employees, will see the threshold for freezing pension contributions raised from £15,000 to £26,557 for 2012/13.
The increases in employee contributions have been distributed among higher earners where they will be offset by the benefit of tax relief for higher-rate taxpayers.
An employee earning £60,000 will no longer contribute less as a proportion of their salary towards their pension after tax relief than someone earning £15,000.
Andrew Lansley, health secretary, said: “Having listened to staff and stakeholders, we have improved our proposals so that an extra 530,000 NHS staff will not pay any more into their pensions next year.
“Public sector pensions will remain among the very best available, providing a guaranteed pension level for all employees. Today, very few private sector employers still offer this. But people are living longer and pensions are costing taxpayers more and more every year.
“These changes alone will not be enough to ensure that NHS pensions are affordable in the long term. We are continuing to discuss wider changes to pensions with trade unions and hope to reach an agreement by the end of the year.
“But we are clear that people will also keep whatever they have already earned. We will honour in full benefits earned through years of service, which means little, if any, change for those close to retirement.”
Trade union Unison said that the new proposals would affect thousands of nurses, paramedics, occupational therapists, and other key NHS staff.
Christina McAnea, head of health at Unison, said: “The proposed increase in pension contributions will still hit more than half of all NHS staff, who are already struggling to cope with the pay freeze and rising inflation.??
“The one-year delay before making the lower paid contribute more is cold comfort. Having an increase looming large when the cost of everyday essentials like food and heating is rising so fast is a nightmare for cash-strapped families.”?
Examples of how the proposed changes could affect individual members include:
A healthcare assistant working full-time earning £15,000 a year:
• Employee pays no extra for pension.
• In 2012/13, the employee continues to contribute 5%, compared to the current employer contribution of 14%.
• For every £1 the employee contributes, the employer contributes £2.80.
A nurse working full-time earning £25,000 a year:
• Employee pays no extra for pension.
• In 2012/13, the employee contributes 6.5%, compared to the current employer contribution of 14%.
• For every £1 the employee contributes, the employer contributes £2.16.
A scientist working full-time earning £30,000 a year:
• In 2012/13, the employee contributes 8%, compared to the current employer contribution of 14%.
• For every £1 the employee contributes, the employer contributes £1.75.
A manager working full-time earning £60,000 a year:
• In 2012/13, the employee contributes 8.9%, compared to the current employer contribution of 14%.
• For every £1 the employee contributes, the employer contributes £1.57.
A consultant earning £130,000 a year:
• In 2012/13, the employee contributes 10.9%, compared to the current employer contribution of 14%.
• For every £1 the employee contributes, the employer contributes £1.28.
The new breakdown of pension contributions are as follows:
2012/13 employee contributions before tax relief (gross)
Full-time 2010/11 pay | 2010/11 contribution rate (gross) | 2012/13 contribution rate (gross) | Contribution rate increase (percentage points) |
Up to £15,000 | 5% | 5% | 0 |
£15,001 to £21,175 | 5% | 5% | 0 |
£21,176 to £26,557 | 6.5% | 6.5% | 0 |
£26,558 to £48,982 | 6.5% | 8% | 1.5 |
£48,983 to £69,931 | 6.5% | 8.9% | 2.4 |
£69,932 to £110,273 | 7.5% | 9.9% | 2.4 |
Over £110,273 | 8.5% | 10.9% | 2.4 |
2012/13 contributions after tax relief (net)
Full-time 2010/11 pay | 2010/11 contribution rate net of tax relief | 2012/13 contribution rate net of tax relief | Net contribution rate increase (percentage points) | Additional cost per month (£) |
£10,000 | 4% | 4% | 0 | 0 |
£15,000 | 4% | 4% | 0 | 0 |
£20,000 | 4% | 4% | †0 | 0 |
£25,000 | 5.2% | 5.2% | 0 | 0 |
£30,000 | 5.2% | 6.4% | 1.2 | 30 |
£40,000 | 5.2% | 6.4% | 1.2 | 40 |
£60,000 | 3.9% | 5.34% | 1.44 | 72 |
£80,000 | 4.5% | 5.94% | 1.44 | 96 |
£130,000 | 5.1% | 6.54% | 1.44 | 156 |
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