Final pay controls – plan ahead to avoid nasty shocks

Final Pay Controls (FPC) were introduced on 1 April 2014 across the UK. They impacted any GP staff and non GP partners and were brought in to control the cost to the NHS Pension Scheme where large pay rises were given in the last three years before retirement.

It applies to people who are members of the 1995 section of the NHS pension scheme even if they have transitioned to the 2015 scheme. It does not apply to people who could not access the 1995 scheme and joined solely as members of the 2008 or 2015 sections.

If the scheme member finds that their pensionable pay rises by more than 4.5% plus consumer price inflation in the final three years a FPC charge can be triggered. Measurement is made by reference to a base year which precedes the final three years.

Any excess growth is then liable to an FPC charge which is levied on the practice. The amounts vary depending on the level of excess but the figures can be large and we have seen cases across the country where they have exceeded £100,000.

There are few exceptions to the charge but those on the Agenda for Pay contract where the pay increase occurs normally as part of the framework agreement are excluded. People who get a pay rise from a change in employment are also excluded although care still needs to be taken.

Traps though include ill-health retirement, pensionable bonuses and non GP partners. The latter group’s pensionable pay is based on profits earned which can vary from year to year and easily exceed the thresholds.

Practices need to take care – and look at pay rises in the context of the FPC legislation particularly for workers approaching retirement. Non GP partners need to plan carefully as they approach retirement to ensure their profit shares do not exceed the limits. Practices may also wish to review the clauses in their partnership agreement to be clear on any liability falls should a charge arise.

A factsheet with examples can be found here.

Written by Laura Clarkson, Healthcare Partner

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