Final Pay Control – A Nasty Charge for GP Practices and Employers
by Laurence Slavin, Partner
Unlike GPs whose pensions are based on their lifetime earnings, GP staff have their pensions based on their final year’s salary.
You might see that there is an opportunity here to hike up the salary of good and loyal staff in their final years, which will reward them with a larger pension for life. There is a counter-measure to this called Final Pay Control. In simple terms, if the pay of an individual increases by more than a set percentage in their final three years, a charge is levied on the employer. But like all clumsy penalties, there are unintended consequences.
One of my clients gave their manager a decent above-inflation pay rise, and the manager soon after retired. Neither of these two events were connected. If you are thinking the charge can’t be much, the penalty was more than £40k, and it is the partners not the staff member that has to pay the charge.
I have another case going on where the manager for some reason has not had her pay rise for the last four years implemented. The partners want to increase her pay now to make up the losses, but if she leaves in the next 3 years they will face a massive penalty.
This Final Pay Control issue was a subject referred to in a consultation response by the NHS Pension Scheme in March 2019, in relation to increase in pay from Agenda for Change, and it had been agreed that Agenda for Change pay rises should not trigger a Final Pay Control charge.
That is good news, but for all other pay rises, try to even them out, and of course be aware that this pernicious charge exists.
This article was written by Laurence Slavin, a partner at Ramsay Brown who specialises in the finances of Primary Care and GPs. He can be contacted at firstname.lastname@example.org or 020 8370 7710