We need to talk about NHS pensions

The Employers Contribution to NHS staff pensions (i.e. the amount that is paid into staff members’ pensions by their employer, or in this case the taxpayer) is currently at a staggering 23.7% of gross annual salary, which is an increase from the previous rate of 20.6%. To put that into context, the minimum contribution that employers in the private sector are obliged to make to staff pensions is just 3%. The average private sector employer pension contribution is between 4% - 5% of gross salary.

In the 2022-23 tax year, this equated to a £12.5billion in cost from the NHS budget, which was up by £0.8billion from 2021-22. With the contribution rate having risen again, the cost to the taxpayer of paying into NHS staff pensions for the 2024-25 tax year will be in the region of £14.5bn.

The overtly generous NHS pension scheme is one of the key driving factors behind why so many of our doctors are retiring so early. By the age of 50, most have consistently had an amount equivalent to £26,461 paid into their pensions by the taxpayer, on top of the contributions that the doctors pay in themselves from their own salary (the “Employees Contribution”), each and every year, for a period of over 20 years.

The top employer’s contribution rate in the NHS pension scheme has risen by nearly 10 percentage points in less than 10 years, from 14.5% in 2015.

Traditionally, the reason why pensions were so high in the NHS (and the public sector as a whole, relative to the private sector) was because it was seen as a trade-off to lower wages. The generally accepted principle was that core pay levels in the public sector are lower than in the private sector, because they are taxpayer funded and pay rates must reflect value for the taxpayer. But this was compensated for with a generous benefits entitlement, including a significant public sector pension, annual leave entitlement, life assurance schemes etc. in addition to greater job security than is enjoyed in the private sector.

However, with many NHS staffing groups increasingly demanding inflation-busting pay rises, this concept seems to have been forgotten. At a time when the NHS budget is stretched so thin, and radical reform needed of how taxpayer funding into the health system is being distributed, such a huge contribution to staff pensions can no longer be afforded or justified.

To reduce the employers NHS pension contribution to be more in line with the private sector at 5%, would save approximately £11.5billion a year. Even if you wanted to keep the levels above those of the private sector, so as not to discourage staff from leaving the NHS, and set the contribution rate at 10% or 15%, this would still save £8.3billion or £5.3bn a year respectively.

That is significantly more than Labour expects to raise through either of its flagship taxation policies of taxing individuals with Non-Dom tax status, or charging VAT on private school fees, yet is not a policy that we have heard any of the main parties contemplate when considering how to get better value for the taxpayer from the enormous NHS budget.