Actuaries have started work on a new valuation of the NHS Pension Scheme, which will assess the costs of the scheme and could lead to changes in benefits or contribution rates.
The latest four-yearly valuation, carried out by the Government Actuaries Department (GAD) on behalf of the Department of Health, covers the 1995 and 2008 sections and the 2015 version of the scheme. GAD’s report will set the employers’ pension contribution from April 2019 and also determine whether the costs of providing benefits fall within the government’s cost cap.
“If the costs of the scheme fall outside the cost cap then either employees would need to pay higher contributions or the value of benefits would need to be reduced – or there would need to be a combination of both,” said MiP chief executive Jon Restell.
The Scheme Advisory Board (SAB), on which MiP has a seat, will be consulted throughout the valuation process on methodology, data and, crucially, on the actuarial assumptions used in the review. If the cost cap is breached then the SAB will also make recommendations on further action to the Secretary of State.
While some of the assumptions are set by the Treasury for all public sector pension schemes, others are specifically agreed for the NHS scheme. Assumptions on things like pensioner mortality, retirement ages, ill-health retirement, death in service, lump sum payments and future pay increases may determine whether the scheme saves money or incurs further liabilities.
A related review of how employee contributions are assessed will be equally important for MiP members.
“Recommendations might look at the current tiers and rates and specifically whether a flatter structure should be used as the balance in the NHS shifts from final salary to career average schemes,” added Restell.
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