NHS England employers to be liable for pension scheme administration costs

A consultation, which closes on 9 January, initially proposes a levy rate of 0.08% of each scheme members' annual pensionable earnings, at a total annual cost of £35 million. According to the DoH, it is "no longer appropriate" for this cost to be met by the government against a background of spending cuts, given than "the scheme is provided for the benefit of [employers'] staff".

Public service pensions expert Nick Stones of Pinsent Masons, the law firm behind Out-Law.com, said that the concept of levies to cover public service pension administration costs was nothing new. The civil service pension arrangements have had a flat fee levy for some years, while the Teachers' Pension Scheme introduced a percentage rate last year, he said.

"With a membership of over three million people, the NHS pension scheme takes some running," he said. "In addition, there is a new layer of governance introduced by the 2015 public sector pension reforms. This needs to be paid for, and currently the cost is absorbed within the Department of Health's budget."

"From a commercial perspective, private sector employers working with the NHS should carefully check the terms of their contracts to see whether this new cost can be passed on to the contracting authority as part of the costs of the services, or whether this cost will have to be met out of profits. If the cost is not recoverable, then they should work to ensure that it is covered off in future negotiation as this cost is only likely to increase over time," he said.

The proposed levy would be payable to all employers whose staff are enrolled into the NHS Pension Scheme. This includes 7,630 GP practices and 281 NHS trusts, foundation trusts and local health boards, according to the consultation paper. The scheme, which is administered by the NHS Business Services Authority (BSA), has around 1.5 million actively contributing members, 700,000 deferred members and 850,000 pensioners.

The final levy rate will be set by the health secretary and fixed until 31 March 2019, and will then be reviewed by the DoH every four years, according to the consultation. The DoH has proposed introducing the levy as a percentage of earnings in order to avoid disadvantaging "smaller employers", such as GP practices, who would otherwise "pay the same as much larger trusts". It also takes account of the fact that some scheme members, such as higher earners, are more expensive to administrate than others.

The 2013 Public Service Pensions Act introduced new governance, cost control, design and administration requirements for public service pension schemes. Since 1 April 2015, these schemes have been regulated by the Pensions Regulator.

Nick Stones said that, once introduced, the levy could be "the beginning of a process" by which administration of the NHS Pension Scheme could ultimately be outsourced to the private sector.

"There is no reason why the administration of the pension scheme has to be done by the government and the days of the NHS BSA being an arm of the public sector are probably numbered," he said. "However, before outsourcing, you first of all have to establish a separate funding basis for the service."

"The need to raise extra money also reflects the pressure on government and the costs of new levels of governance and oversight created by the pension boards. It is not likely to see greater levels of engagement for employers, as trumpeted by the consultation paper. It is probably fair to ask why the members are not also being asked to pay for administration, albeit that this is likely to be politically unacceptable," he said.