BMA challenges NHS pensions cost fix

by Neil Hallows

The Government’s plans to remedy issues identified in an age discrimination case will pass the costs on to NHS pension scheme members, warns the BMA

Location: England
Last reviewed: 15 November 2021
vish sharma

The BMA has issued a pre-action letter challenging the Government’s plans to unlawfully use the ‘surplus’ arising from the 2016 valuation of the NHS pension scheme to finance the cost of the McCloud remedy, which will deny improved benefits to members. 

It has sent the letter to the Treasury and Department of Health and Social Care, which is a formal step taken before requesting a judicial review at the High Court. 

The dispute centres on a ‘cost control mechanism’, which is part of the 2015 pension scheme to which many NHS doctors belong. The mechanism is meant to ensure that if a valuation of the scheme showed that the costs to the taxpayer and scheme members had risen or fallen outside a target rate, then steps would be taken to address the overall cost. 

If the scheme became too expensive to run, it might mean higher contributions from members. However, a valuation in 2016 found the opposite: there was a ‘cost floor breach’ – the cost of running the NHS pension scheme was significantly less than had been forecasted and, under the terms of the 2015 changes, this should have automatically triggered a process to reduce member contribution rates and/or increase pension benefits to bring the costs back within the agreed parameters.  

Discrimination ruling

In 2018, the Government said in its initial response to the 2016 valuation that there would be ‘improved pension benefits for employment over the period April 2019 to March 2023’, and it launched a review to find the best way to do this. Agreement was reached between the Government and unions representing the NHS pension scheme members to increase pension benefits and reduce contribution rates in 2018.  

However, in January 2019, the cost control mechanism was paused. The reason given was the McCloud judgement, an Appeal Court ruling that the transitional protection given to older members during a 2015 reform of the majority of public service pension schemes (including the NHS pension scheme), was age discriminatory. The Government suggested that the impact of this remedy on pensions costs was uncertain, despite the McCloud remedy being unrelated to the cost floor breach.  

When the pause of the cost control mechanism was lifted, 18 months later, the Government stated that its intention was to transfer the costs of the McCloud remedy into the 2016 valuation. If this were to happen, the improved benefits to members that had been previously agreed to be implemented would now no longer be honoured as the McCloud remedy costs, if incorporated, would remove the cost floor breach.  

The BMA is challenging the Government’s actions in both lifting the suspension of the cost control mechanism and rolling in the costs of the McCloud remedy for the purposes of resuming the cost control mechanism and reconfiguring the valuation of the scheme.  

Passing the buck

BMA pensions committee chair Vishal Sharma said: ‘It is entirely wrong in principle that the Government is passing the costs of remedying age discrimination, for which it and it alone was responsible, onto NHS Pension Scheme members. It is effectively trying to make NHS scheme members pay for its unlawful age discrimination.  

‘The cost control mechanism in the scheme was designed to allow it to react to changing circumstances, but certainly not designed to accommodate a ruling such as McCloud.’ 

Dr Sharma said the impact of the Government’s actions was overwhelmingly negative for doctors and others who belong to the scheme.  

When the cost control mechanism was paused, members in the top two tiers had essentially paid too much in pension contributions as the Government had already agreed to reduce these costs.   

The pension benefits accrued were also set to improve and potentially these increased benefits could have remained in place for many years as they would not have been changed again unless a further breach of the cost control mechanism occurred. 

Dr Sharma also said there was a failure to consider and address the impact upon members and groups of members with protected characteristics. In particular, it was agreed in 2018 that those working part-time would pay pension contributions based on their actual pensionable pay rather than their whole-time equivalent pay. This would remove the current unfairness whereby those working part-time currently pay more per pound of pension than their full-time colleagues. The Government’s delay in implementing this resulted in part-time workers continuing to suffer an unfair anomaly.  

‘The Government’s actions are manifestly unfair,’ he said. ‘It has tried to remedy one injustice – an unlawful act of age discrimination – with another, which has no reasonable basis. We will take the strongest possible action to resist it.’