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Federations and NHS pensions

Can a federation be classed as an NHS employer and therefore enable employees to join the NHS Pension Scheme? And is practice income from federations pensionable? Jenny Stone explains.

Federation employees may be entitled to enter the NHS Pension Scheme (Picture: iStock)
Federation employees may be entitled to enter the NHS Pension Scheme (Picture: iStock)

From 1 April 2014, the NHS Pension Scheme allowed organisations that hold a standard APMS or a local authority contract to become an NHS employing authority as an independent provider (IP). This means that a federation can choose to become an NHS employing authority and employees can join the NHS Pension Scheme as long as the eligibility tests are met.

However, if a federation becomes an NHS employing authority, there is no provision under the current NHS Pension Agency (NHSPA) regulations to allow GPs or individuals who work under a self-employed contract to pension their income. This means if income is paid to practices for services they provide to the federation, this income will not be pensionable for the practice. Only eligible employees of the federation can pension their earnings.

Federation structure and NHS Pension Scheme eligibility

The type of structure of a federation and the type of contracts it holds may affect whether employees are eligible to join the NHS Pension Scheme.

  • If the federation just holds an APMS contract and is a company limited by shares and all the shareholders are GPs, it can become a member of the NHS Pension Scheme as a ‘classic APMS provider’. This means all employees can join the NHS Pension Scheme and self-employed GPs can pension their earnings.
  • If the federation is a company limited by shares and not all the shareholders are GPs and it only holds an APMS contract, it can join the NHS Pension Scheme as an independent provider.
  • If the federation is a company limited by shares and holds a NHS standard contract or a local authority contract it can join the NHS Pension Scheme as an independent provider.

Employee eligibility

Employees of the federation are only able to become members of the NHS Pension Scheme if they spend more than 50% of their pensionable hours solely working on a standard, local authority or APMS contract.

When calculating the 50%, this is based on a whole time working week of 37.5 hours and excludes overtime. If a part-time employee is normally contracted to do 20 hours and works extra hours up to the whole time equivalent these hours can be included.

Although an employee of the federation may meet the 50% eligibility criteria, they cannot join the NHS Pension Scheme if:

  • They are over 75,
  • Are already in receipt of their NHS pension benefits,
  • They are already a whole time NHS Pension Scheme member elsewhere and are pensioning 37.5 hours of income. For example, a practice manager pensions their full time salary at the practice and is also employed by the federation. As they are paying pension on their full time salary at the practice, they cannot pension their salary from the federation.

Open or closed access

Once a federation has decided to become an independent provider, it will need to decide whether it wants to have open or closed (restricted) access to the NHS Pension Scheme.

If it decides to have open access, this means that all employees that meet the 50% criteria will be able to pension their earnings, subject to the 75% pensionable pay ceiling (see below).

If the federation decides to have closed (restricted) access to the scheme, the only employees that are eligible to become members are those that were working in the NHS and entitled to join the NHS Pension Scheme within the 12 months prior to the federation first becoming an NHS employing authority as an independent provider. These employees will still need to meet the 50% criteria test.

The 75% pensionable pay ceiling

The total pensionable pay of all eligible employees must not exceed 75% of the value of the NHS standard/local authority/APMS contract. If the pensionable pay ceiling is exceeded, the independent provider would need to pay a surcharge, which is calculated as 12% of the pensionable pay above the threshold.

For example, if the contract value was £500,000, the pensionable pay of all eligible employees (including those who choose to opt out or cannot join due to conditions above) cannot exceed £375,000. If the pensionable pay of all eligible employees was £400,000, a surcharge of £3,000 would be payable on the excess £25,000 (£400,000-£375,000 x 12%).

This ceiling is unlikely to be an issue for federations as the majority of the income is likely to be paid to practices for providing these services under self-employed contracts. Therefore as this income is not pensionable is does not form part of the calculation of pensionable pay.

Income paid to GP practices

As GP practices will be providing services to the federation and are likely to be paid under a sub-contractor, self-employed contract, unfortunately this income cannot be pensioned despite it being from an NHS contract.   

This means when the income is paid to the individual practices it will be treated as non-NHS income for the purposes of completing the individual partner’s superannuation certificates.

Contribution guarantee

One of the conditions of becoming an independent provider is that a federation will need to guarantee a payment equal to between 100% and 110% of 3 months’ pension contributions that would be payable for members of the NHS Pension Scheme. This will include both the employees’ and employers’ contributions.

If a federation meets the criteria for becoming an independent provider it is not legally required to become an NHS employing authority, it can choose whether it wants to provide access to the NHS Pension Scheme to employees.

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