Final Pay Controls – new form required
Many of you will now have heard of the notorious Final Pay Controls that can impose significant additional employer pension contribution charges on the practice when an employee’s pay in the 1995 pension scheme increases in the final few years up to retirement.
For a number of practices the Practice Manager, an Advanced Nurse Practitioner or a Pharmacist might be a Non-GP Provider partner in the GP partnership and these charges can apply when they retire too. This can cause very high Final Pay Controls charges to be paid by the partnership as “employer” when profits have fluctuated for perfectly normal commercial reasons.
Previously, when the scheme member (employee/Non-GP Provider partner) retires, the NHS Pensions Agency, as part of the retirement claim process, were supposed to check the pay of the last four years to determine whether a Final Pay Control charge applied. It appears that the checks, however, were not consistently being done. The NHS Pensions Agency have therefore introduced a new form that the practice must complete when an employee or Non-GP Provider partner retires with 1995 benefits, even if that member has subsequently moved into the 2015 pension scheme, and, in the practice’s opinion, a Final Pay Control may arise. The NHS Pensions Agency have confirmed they will require completion of the form in either of the following circumstances:
- There has been a significant pay increase in the last four years, or
- They are likely to exceed the allowable amount of 4.5% in the last four years
The form is called the Final Pay Control Supplementary Form (FPC 1) and requires you to provide the NHS Pensions Agency with details of the four years of pensionable earnings from before the retirement. The NHS Pensions Agency do not define what “a significant pay increase’ is, and you may consequently need to seek advice in working out what the last four years pay is. This can be by no means straightforward.
A Non-GP Provider retiring on 30 September from a practice with a 30 April accounting year end would be in no position to know what the final profit would be until the accounts from the next year are prepared. There also needs to be apportionment of one year’s pensionable pay and the addition to apportioned profits from the year before to consider so that four 12 month periods up to the retirement date can be found. And then there is consideration of the potential charge itself, which is a complex calculation.
If the above then uncovers that a charge may arise, the FPC1 form needs completing and submitting. It cannot be submitted with the AW8 pension claim form. It needs to be emailed to the separate Final Pay Controls team at firstname.lastname@example.org.
Potential charges arising from national Agenda for Change scale increases are exempt from the charge, as may be genuine promotions to a higher paid role within the NHS with a different employer.
For employed staff, identifying the pensionable pay should in theory be more straightforward. But one wonders whether the NHS Pensions Agency are aware that payroll operators only need to keep records for three years? Will they have access to the full four years required? Perhaps not, particularly if the member is retiring from a position they have only been employed in for a short time.
For Practice Managers particularly, planning for retirement to mitigate a charge whilst maintaining pension benefits at a reasonable level is crucial. We can assist with that. From a legal point of view, though, it must also be considered where the charge lies. The pension regulations place it on the practice as a further employer pension contribution. If it arises, however, because of an increase in profits for a retiring Practice Manager partner, should that retiree bear at least a proportion of it? One to consider with your solicitor for the partnership agreement!
Should you have any queries concerning above, please contact David Walker on 01253 404404, or a member of our specialist healthcare team.