We look at the provisions and restrictions for Independent Providers in more detail and the new financial controls placed on all employers in the NHS Pension Scheme.
The National Health Service Pension Scheme (Amendment) Regulations 2014 (the Amendment Regulations) further amend the National Health Service Pension Scheme Regulations 1995 (SI 1995/300) (the 1995 Regulations) and the National Health Service Pension Scheme Regulations 2008 (SI 2008/653) (the 2008 Regulations) to, amongst other changes, introduce the new scheme access requirements for independent providers of NHS clinical services.
From 1 April, an Independent Provider (IP) is, in NHS pension terms, an organisation that holds a Standard NHS contract, a contract as an Alternative Provider of Medical Services ("APMS") or public health related local authority NHS contract and who did not previously qualify as an employing authority.
Previously only healthcare professional-led contractors had access to the NHS Pension Scheme (the Scheme). However, from 1 April 2014, an IP who meets the relevant eligibility criteria will be able to apply to become an employing authority in the Scheme.
The process for approval is set out in the Regulations and NHS Business Services Authority has also produced a guide to administering the NHS Pension Scheme for Independent Providers and their employees and an application form.
In summary, IPs who require access to the Scheme will need to:
- apply to NHS Pensions for 'IP employing authority status';
- hold one or more NHS Standard or APMS contracts, or a public health related Local Authority contract to provide NHS clinical services;
- automatically join in the Scheme all eligible staff according to their declared access option;
- confirm that they are seeking access for employees who are primarily engaged in the delivery of NHS clinical services;
- confirm that enrolled staff are engaged in NHS clinical services for more than 50% of their time; and
- arrange, if required by NHS Pensions where there has been a failure to pay contributions or a history of late or unpaid contributions, a bond, indemnity or guarantee.
We look at these requirements in more detail below.
What is a 'qualifying contract' for NHS Pension purposes?
The Regulations define a 'qualifying contract' as, for NHS Pension purposes, a contract between a relevant commissioning party and an IP, the primary purpose of which is the provision of clinical health care services for the NHS and which is either:
- an NHS standard contract,
- an APMS contract; or
- a contract entered into by a local authority pursuant to its functions under the National Health Services Act 2006 relating to the improvement and protection of public health and which the Secretary of State agrees to treat as a qualifying contract.
IP access options - closed or open approval?
Once an IP has decided to become an employing authority in respect of a qualifying contract, it must decide if it wants to apply for approval on either a 'closed approval' or an 'open approval' basis.
This will be a strategic decision taking into account market position, costs and any recruitment and retention issues. However, it is important to note that the approval and the basis of that approval will be extended to any other qualifying contract to which the IP is or subsequently becomes a party to. It is not possible to pick an approval basis for a specific contract only.
A 'closed approval' basis means that access to the Scheme is restricted to those eligible employees who:
- are not otherwise covered by a direction; and
- were, in the 12 months preceding their employment with the IP, entitled to be a member of the Scheme (whether or not they were actually a member).
An 'open approval' basis covers all eligible employees performing services under the qualifying contract.
Where approval is granted it will take effect from a later nominated date or the date it is granted, if no date is specified. Approval cannot be granted retrospectively.
The Regulations also seek to restrict IP companies which are associated to each other from obtaining approval on different bases. These restrictions have been put in place specifically to restrict an IP's ability to pick and choose a level of pension access for a specific contract or in relation to a particular group of individuals.
The Department of Health believes that the Regulations now reflect the concerns expressed during consultation, that giving maximum flexibility to IPs to choose who could access the Scheme would be unacceptable to current NHS bodies who are obliged to offer membership of the Scheme to all staff. The general consensus was that the use of the Scheme in such a manner would lead to a two-tier workforce, pay and other equal treatment issues.
Changing the approval basis
The Regulations allow however, for an IP to apply for a modification notice and move from one approval basis to another and back again. The notice will be effective in respect of all qualifying contracts.
The process for changing the approval basis is prescribed in the Regulations. In relation to a change from an open approval to a closed approval basis, the notice must be in writing and requires a minimum period of six months to take effect. The notice will only take effect in relation to a particular member if his consent is given; otherwise he remains a member of the Scheme.
A notice to change from closed to open must also be made in writing with a minimum notice period of three months. Such a change will apply in respect of all employees (and future employees) of the IP engaged to perform services on qualifying contracts provided that they satisfy the 'wholly or mainly condition' (see below).
As with the initial approval application, a modification notice that is given in respect of one or more qualifying contracts is effective in respect of all existing and subsequent qualifying contracts.
Who is an 'eligible employee'?
To be an eligible employee, the employee must:
- satisfy the 'wholly or mainly condition'; and
- be eligible to join the Scheme.
The 'wholly or mainly condition' is satisfied where the employee spends more than 50% of their actual working pensionable hours employed on a qualifying contract over the Scheme year (from 1 April until 31 March) or part year, where the services under a contract start or finish part way through a year.
All staff employed on a qualifying contract are covered, including non-clinical support staff and those in back office functions.
What pension benefits are available to employees of IPs?
IP Scheme members will become entitled to the same personal and dependents benefits as other Scheme members and will be treated as 'officers' in the Scheme.
This includes redundancy pensions for staff over minimum pension age, provided that the capitalised sum (representing the cost of the early payment of the benefits) is made before the benefits are paid.
Financial controls on IPs
The NHS Business Services Authority has stressed that the full cost of opening the Scheme to IPs will be closely monitored, in particular at the four yearly valuations.
There are also routine controls in place to protect the taxpayer and existing NHS employers:
- IPs will be allowed to pension up to, but not normally more than, 75% of their gross income from all of their qualifying contracts
- Where the 75% threshold is exceeded and the IP is unable to justify the excess pensionable pay over 75%, the IP will be required to pay an employer contribution surcharge (currently set at 12%) on that part of the excess as the Secretary of State (NHS Pensions Business Services Authority acting on behalf of) considers reasonable
- NHS Pension will be able to ask for additional information from IPs and to check pay and pension records;
- Arrears of unpaid contributions can be 'set-off' against services fees due to the IP; and
- Evidence of non-compliance with the regulations may lead to an adjustment to the pensionable pay figures and/or the termination of the IP's employing authority status.
Financial controls on all NHS employers
New controls will also apply to all Scheme employers from 1 April 2014:
- Interest and administration charges will be required from Scheme employers who pay contributions late;
- In relation to members in the 1995 Section of the Scheme, there will be an 'excess employer contribution' charge for the cost of pension benefits calculated on pensionable pay increased beyond the pay increase cap. The cap will be equal to the level of consumer price index + 4.5%. The charge will be to increases made above this cap in one or more of the final three years prior to retirement. Members' pension benefits will not be reduced and will continue to be calculated on the uncapped pay;
- Power for the Secretary of State to restrict final pay in the 1995 Section and reckonable pay in the 2008 Section where it is determined excessive. Any pay determined excessive will be disregarded when calculating member benefits. Contributions on the excess will be refunded to the employee and the employer. When making the determination, the Secretary of State must consider certain matters including the experience of typical NHS employment pay and progression for similar positions in the ten years prior to retirement.
- Power to require a guarantee, indemnity or bond for certain employers who fail to pay their Scheme contributions or have a history of late or unpaid contributions for such amount as the Secretary of State approves.
How does Scheme access for IPs interact with New Fair Deal Directions?
When a provider is granted a 'New Fair Deal Direction' by the Secretary of State, the 1995 Regulations and/or the 2008 Regulations as applicable are modified to grant the provider employing authority status as a person who is subject to a direction made under section 7 of the Superannuation (Miscellaneous Provisions) Act 1967. The New Fair Deal Direction then makes other modifications to the Regulations for employers referred to in a New Fair Deal Direction and for employees subject to that Direction.
The difference between the methods of access to the Scheme is essentially one of 'obligation' or 'choice'.
Where staff are compulsorily transferred from an NHS body, an IP is obliged to comply with New Fair Deal and offer transferred staff access to the Scheme. This will normally be by means of a New Fair Deal Direction
An IP has the choice whether to offer staff, who join them voluntarily to work on a qualifying contract, access to the Scheme and this is a strategic decision.
New Fair Deal Directions are closed, in that they are restricted to those employees who transfer from the public sector and who are named in the Schedule to the Direction. If an IP wants to offer all staff working on the qualifying contract access to the Scheme then it will need to separately apply for IP employing authority status in the Scheme.
 The Amendment Regulations also increase employee contributions from 1 April 2014, accommodate the HMRC Fixed and Individual Protection 2014 facilities and make other miscellaneous and technical amendments.
 See regulation 2.M.3 'Approval Applications' in the 2008 Regulations and see para s 13 to 23 of Schedule 2B in the 1995 Regulations 'Approval and Approval Applications'
 Regulations 2.M.4 and 2.M.5 of the 2008 Regulations and paras 24 34 of the 1995 Regulations
 Regulation A2 (interpretation) of the 1995 Regulations is modified at paragraph (k) at a Regulation 2.A.1 (interpretation: general) at paragraph (l) of the definition of employing authority to insert, after "Act 1967" the wording "including one made in pursuance of the New Fair Deal Guidance issued by the Treasury and Dated 4 October 2013 (a New Fair Deal Direction")