Final pay control charges
Catherine Hough · January 2nd 2024 · read
Final pay control charges were designed to protect the NHS Pension scheme against the costs of excessive increases in employees’ pensionable pay in the final three years of employment, such that their retirement benefits would be significantly inflated.
Before this, no regulations were preventing a practice from arranging to give someone a large pay increase before retirement, specifically for the purpose of uplifting their pension.
The charge is applied where the employee had a pensionable pay increase that exceeds the allowable amount (CPI plus 7%). These charges can be significant and put practices under financial pressure.
Quite often practice managers are unaware of final pay controls and the potential impact the charges can have on the practice and its finances.
Who is affected?
All officers and practice staff members of the 1995 section of the NHS pension scheme including practice managers, GPs with mental health officer status and nurses. This can also affect non-GP providers.
Practice manager salary
- 2020 - £36,000 - Base year
- 2021 - £46,000 - Year 3 - increase from prior year – 27% - allowable 8.7%
- 2022 - £46,000 - Year 2 - increase from prior year – 0% - allowable 7.4%
- 2023 - £47,000 - Year 1 - increase from prior year – 2% - allowable 13.2%
In this case, a practice manager’s salary was increased to bring up to the current market rate. However, they then retired 2 years later.
This increase in pensionable pay exceeded the allowable amount between 2020 and 2021, meaning a charge would be payable.
The charge is calculated based on the excess pension created by the increase multiplied by the FPC factor of 22.61. In this case, the charge was in excess of £20,000.
Could this have been avoided?
Practices need to be aware of the implications of pensionable pay increases leading up to a staff member's retirement.
If the practice manager had retired a year later in the example above, then it’s likely there would have been no charge.
Are there ways FPC charges can be triggered?
- Non-GP partners Where a practice manager or nurse becomes a partner and then either retires within 3 years, if the practice has a profitable year this could take the pensionable pay above the allowable amount.
- Ill health retirement Accessing a pension earlier than planned due to ill health triggers the FPC calculation.
- Bonuses In general, due to the nature of partnership and variable profit shares each year, it is easy to get caught by the charges inadvertently.
- Part time workers Calculations are based on FTE so can catch out employers when considering final pay control rules.
Are there exemptions that can apply?
Where the increase relates to:
- Increase in minimum wage.
- Increases due to agenda for change.
- Increases due to a promotion (after ‘fair and open competition’)
Full list of exemptions regulation D3 of National Health Service Pension Scheme Regulations 1995.
Who is liable?
The employer is liable by default which essentially means the partners of the practice. Problems can arise here where partners have left and new ones joined, so it is important to have this included clearly in the partnership agreement.
Is there an appeal process?
If your practice has received a final pay control charge and you have a query on the calculations, or if you consider that an exemption applies and you wish to appeal the charge, the first step is to contact [email protected] setting out the reasons for the appeal and any accompanying evidence.
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Our top tips
Include a provision for FPC in the partnership agreement.
Regularly review staff pay increases especially where staff are looking to retire.
Always plan ahead.
Ask for advice from a specialist accountant and member of AISMA.