Changes to the NHS Pension Scheme from April 2025

Introduction

The Department of Health and Social Care (DHSC) will introduce a number of changes to the NHS Pension Scheme Regulations from April 2025. They include:

• rectifying unintended inconsistencies in the treatment of overtime under the 2015 NHS Pension Scheme Regulations (the 2015 Regulations) for part-time workers
• providing greater financial fairness for employees during periods of reduced pay, such as maternity or sickness leave
• improving the accuracy of pensionable income calculations for GPs and other self-employed providers  

The main changes are:

1. Pensionability of additional hours for part-time members

Current Position

Under the 2015 Regulations, overtime payments are not pensionable. For full-time staff, under Agenda for Change, overtime is defined as hours worked beyond 37.5 hours per week and is typically paid at a premium rate. For part-time staff, any additional hours worked beyond their contracted hours but below 37.5 hours per week are paid at a standard rate. However, due to an unintended omission under the 2015 Regulations these additional hours (i.e. up to 37.5 hours) are not currently pensionable for part timers. This discrepancy has led to concerns regarding fairness in pension accrual for part-time employees.

DHSC aims

DHSC will now amend the 2015 Regulations so that the legal definition of overtime reflects the intended approach, and underwrites how it is believed the NHS Pension Scheme has been widely operated in practice during the period 1 April 2015 to 31 March 2024: i.e. that any additional hours worked by part-time staff have already been treated by employers as pensionable up to a ceiling of what would be their whole-time contracted hours, and any hours worked above whole time considered overtime. This is the position set out in the Scheme literature.

As a fundamental principle the NHS Pension Scheme is reliant on employers applying the rules. DHSC assumes that most employers will have followed Scheme literature and guidance issued by the administrator: collecting and making pension contributions for part-timers based on any additional hours up to the whole-time ceiling. Accordingly, members in many instances will have built up and received pensions calculated on this basis. The aim of DHSC’s retrospective amendment is to reflect this reality and ensure no disruption in respect of these cases.

However, DHSC has acknowledged that there could be some part-timers who did not have their additional hours pensioned because their employer specifically followed the 2015 Regulations, rather than Scheme guidance. In retrospectively changing regulations, DHSC does not want to create detriment for these members by now creating an obligation on them to unexpectedly pay contribution arrears. Consequently, DHSC has included a ‘carve out’ for any members who have historically had their additional hours treated as non-pensionable. The amended Regulations will allow those members to keep their current position (that is retain these additional hours as non-pensionable) by default, unless they elect for the hours to now be pensioned and agree to pay contribution arrears, using an agreed payment plan if preferred.

Actions for employers and affected part-time members

In summary, the change from April 2025 will formally allow additional hours worked by part-time staff, up to the whole-time equivalent of 37.5 hours per week, to be treated by members as pensionable. This change aligns the 2015 Scheme with previous practice in the 1995 and 2008 NHS Pension Schemes, ensuring parity between full-time and part-time staff regarding pension contributions, and the way pension benefits build up.

DHSC believes that members need flexibility to pay arrears. It has confirmed that the NHS Business Services Authority will review all cases and work with the member to ensure that there is an appropriate solution to support each individual member’s circumstances. The current arrears process allows members to make the payments over a period of time if they choose to do so, and DHSC has said that employers will also be able to agree payment plans, in line with normal practice.

DHSC recognises there should be an appropriate amount of time available for employers and members to take action where necessary. In relation to the timeframe for employers to notify affected part-time members of the option to now retrospectively pension their additional hours, DHSC has extended the deadline for employers to do so from 1 October 2025 to 1 January 2026. This allows further time for the NHS Business Services Authority to work with and help employers take action. Members will have 3 months from the date of receiving this notification to make their election. The new regulations allow employers to extend this period where their staff need further time to make their election, up to a backstop of 1 July 2026 by which time all elections should be made.

2. Calculation of member contributions during periods of reduced and no pay

Currently, NHS Pension Scheme member contributions are calculated based on the pensionable earnings received prior to any reduction in pay, such as during periods of parental leave or sickness absence.  This means that contributions may not always reflect the actual earnings of the member during these periods, which can create financial strain by requiring full member contribution levels in some circumstances. DHSC’s changes clarify the method for calculating member contributions during periods of reduced pay, ensuring that contributions are based on actual earnings during these periods. They will also reaffirm the position for when pay drops straight from full pay to zero, which is effectively unchanged.

DHSC changes

This change aims to provide financial relief to members experiencing reduced income, while maintaining their pension benefits at a proportionate level. By basing pension contributions on actual earnings during periods of reduced pay, such as parental leave or sickness absence, members will contribute proportionally less during these periods.

As a separate but related point, the way that contribution rates are calculated for the NHS Pension Scheme was changed on 1 October 2022, so that instead of the contribution rate being based on members’ whole time equivalent (WTE) pay, contribution rates are now calculated using their actual annual pay. As a result, many part-time members of the NHS Pension Scheme already pay lower contributions than they previously would have done.  However, as the application of this provision by employers has not been consistent, DHSC has taken the opportunity to confirm the position in the new Regulations. 

Under the current legislation, members accrue pension benefits as if they are still in receipt of full pay, even when their pay reduces. It is important to note that the April 2025 changes will not affect benefit accrual and members will continue to accrue pension benefits as if they are in receipt of their full pay. The change only affects the member contribution rate and consequently, the amount of member contributions that some members will pay during periods of reduced pay.

The types of leave affected by the changes are:

• adoption leave
• carers’ leave
• leave due to illness or injury
• maternity leave
• neonatal care leave
• parental bereavement leave
• parental leave
• paternity leave
• shared parental leave

The April 2025 changes to NHS Pension Scheme Regulations will achieve the following:

• Firstly, they will clarify that with retrospective effect from 1 October 2022, member contribution rates are based on actual reduced pensionable pay, rather than what the member would have been paid if they were on full pay. This amendment does not affect benefit accrual, and members still build up benefits based on their deemed full pay.
• Secondly, an amendment to the calculation for unpaid leave will be made so that contribution rates can be calculated for members who go straight from full pay to zero pay, rather than stepping down to reduced pay before subsequently moving to zero pay. This is a technical amendment to ensure that members who go straight to zero pay can continue to accrue pension benefits, in certain circumstances. No changes to the method of calculating member contributions for members who are on unpaid leave are being made, with the pensionable pay at the point directly before the member went on unpaid leave continuing to be used in these circumstances.

Impact on employers and members

The NHS Pension Scheme Advisory Board, in considering the change, noted that some employers had already been calculating member contribution rates based on reduced pay and that this change will bring consistency across employers. Some others have raised concerns about the administrative impact of backdating changes to 1 October 2022, stating that some employers might find the changes burdensome.

However, DHSC has confirmed that because there has been inconsistency in the way that the contributions have been calculated since October 2022, this needs to be rectified.

The changes to the Regulations clarify the approach that applied from 1 October 2022 and was included in payroll requirements. Where payroll providers have followed the payroll requirements, no changes will need to be made. However, where payroll providers did not implement those changes, they will need to do so now and backdate the changes to 1 October 2022 to ensure that members are treated consistently. DHSC acknowledges that this may create an administrative impact on payroll providers.

DHSC has reassured members that they will build up pension benefits as if they are still in receipt of full pay and that the changes do not change the amount of benefits, only the amount of contributions that are paid for those benefits.

A further technical issue arises in relation to members on unpaid leave, as their contributions cannot be based on their actual pay figure of zero because that would mean that no contributions would be payable. Consequently, the new regulations have been drafted to calculate members’ pension contributions by looking at the amount that they were paid before their pay dropped down to zero. DHSC will consider how best to ensure that clear communications and guidance are provided on this point.

A further change for new parents on reduced pay

DHSC will also amend regulation 28 (Pensionable earnings: break in service) of the 2015 Regulations to take out the gendered reference to women on maternity leave when disregarding days where members return to work for the purpose of keeping in touch, when calculating reduced pay. This amendment will clarify that keeping in touch days for all members who are on adoption leave or shared parental leave will be treated in the same way and ensure consistency across the different types of leave when calculating reduced pay for the purposes of member contributions. 

3. GP and non-GP provider annual certificates of pensionable profit

General Practitioner (GP) partners and non-GP providers are required to submit annual certificates of pensionable profits, which determine their pensionable earnings. However, these certificates do not always reflect adjustments made in revised tax returns, which can result in discrepancies between declared pensionable income and tax records.

To address this issue, the proposed amendment will allow GP partners and non-GP providers to update their annual certificates of pensionable profits for the 2024 to 2025 period to match the amounts declared to HM Revenue and Customs (HMRC) in their revised tax returns. Allowing GP partners and non-GP providers to align pensionable profits with revised tax returns will enhance enhancing pension accuracy and fairness. This ensures that pension benefits reflect their actual earnings rather than initial estimates, which may have been inaccurate. This amendment will provide greater financial predictability and reduce the risk of incorrect pension contributions being paid.

Weightmans NHS Pensions team

Neil Bhan, Partner - neil.bhan@weightmans.com

Philip Woolham, Principal Associate - philip.woolham@weightmans.com

Alexandre Fousse, Solicitor - alexandre.fousse@weightmans.com