Pension

What are the challenges of recycled pension contributions?


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If your practice is considering implementing recycled pension contributions, what challenges can you expect to face? 

If GPs have opted out of the NHS pension scheme for tax reasons, employers can introduce a policy to pay any unused employer contributions as a salary; this is known as ‘recycling contributions’.

Recycling unused employer contributions recognises that staff who have opted out of the scheme, due to pension tax issues, will not get the full value of benefits from their employer’s pension contribution in comparison to other colleagues. This payment enables the employer to restructure the employee’s total reward package to maintain its value thereby encouraging the employee to continue working in the sector for longer.

However, before an employer decides whether or not to introduce a recycling policy, they must consider the legal risks and repercussions. 

Equality risks

Contribution recycling policies may have an impact on pay equality and the gender pay gap, particularly when contribution recycling is offered to one group of staff and not others; this may create a risk of equal pay claims or claims of discrimination on the ground of age or sex.

In order to mitigate these risks, employers should:

  • Use an equality impact assessment to assess the potential implications of introducing a contribution recycling policy.
  • Have a strong justification for introducing the policy.

Compliance with automatic enrolment duties

Contribution recycling policies can act as incentives for employees to leave the NHS pension scheme; under the automatic enrolment regulations set out in the 2008 Pensions Act employers should not take any actions to induce a worker to give up membership of a relevant scheme without becoming an active member of another. 

In order to meet these regulations, employers must have a strong justification for introducing the contribution recycling policy. The Pension Regulator will look at the motivation of an employer to determine whether there has been a breach of automatic enrolment duties; to prove there has been no breach, employers must provide clear evidence and justification that the policy has been introduced with the aim of retaining and senior clinicians, managers and key decision-makers, and was not introduced for the sole purpose of inducing staff to leave the NHS pension scheme. Employers can also offer an alternative pension scheme. 

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