Will you pick up future liability for a final pay control charge?
Have you checked whether your practice has an NHS Pensions liability for “final pay control”? Final pay control can involve very large sums payable to NHS Pensions by a practice. We are aware of liabilities in excess of £100,000 arising as employees and partners retire.
What is final pay control?
Final pay control was introduced by NHS Pensions to discourage practices from paying inflated earnings in order to secure their staff a higher pension.
It is applicable to all Officer and Practice Staff members of the 1995 Section of the NHS Pension Scheme, including 1995/2015 transition members. In practice, this means non-GP partners and practice employees may fall within the rules. If, during the final four years of employment or partnership, a member receives an increase to pensionable pay that exceeds a defined ‘allowable amount’, the practice is liable for a final pay control charge.
Who has to pay the charge?
When the member draws their pension, NHS Pensions will calculate the charge and invoice the practice. Interest and penalties apply for late payment.
Where the member is or was an employee, the partners will be liable for the charge.
Where the member is or was a partner, the partners will be jointly liable, but who actually pays the charge will be determined by their partnership arrangements.
Key concerns
The charge may arise many years after an employee or partner has left the practice, as it is only triggered when the member draws their pension. The partners at the time the invoice is issued will have to pay the bill and then seek to recover monies from former partners if their partnership arrangements permit them to do that.
Although the rules are clear that an employee must not be made to pay the final pay control charge, they are less clear about non-GP partners. NHS Pensions will seek to recover the charge from all the partners jointly but how this cost is allocated between the partners is a matter for their partnership agreement.
The charge can seem unfair for non-GP partners who share in the profits, as these are inherently variable. For example if, four years before retirement, the practice had a poor financial year but this was successfully turned around, a charge may well be incurred. If four years ago there was an unusually profitable year, there would probably be no charge.
What can you do?
- When an employee or non-GP partner leaves the practice, you should check whether they are a member of one of the relevant schemes and calculate whether a final pay charge would be due. To do this, you will need to go back over the past four years of pensionable earnings, including any earnings paid by a former NHS employer during that period. If a charge is due, you should discuss with your accountant whether to accrue it in the partnership accounts.
- Where a non-GP partner is a member of one of the relevant schemes, you should consider updating your partnership agreement to make it clear how any final payment charge will be shared. We would be happy to check your partnership agreement for you.
- When merging with or acquiring another practice, as part of your due diligence exercise you should enquire about potential historic and future final pay control liabilities and ensure that it is clear who will be paying them. This should be set out in any GP practice merger or acquisition agreement which we can check for you.
- When a partner joins or leaves the practice, you should pay particular consideration to whether the final pay control charges should be accrued in the joining/leaving accounts.
Conclusion
If you are in any doubt about your situation, then give us a call. Contact Nils Christiansen on 01483 511555 or email n.christiansen@drsolicitors.com
News
Integrated care provider contracts – opportunity or threat?
NHS England is currently consulting on a new Integrated Care Provider contract (ICP). This seeks to commission services on a whole population basis by providing primary, secondary and possibly tertiary health and care services together through one contract. This would result in one single provider being responsible for the majority of healthcare delivered to a locality. Here, we share our views on the impact the ICP contract could have on GP practices.
As currently drafted, it is a condition of the ICP contract that primary care services are included in the scope of the contract. It allows for two routes to delivery: partial integration or full integration.
1. Partial integration
Practices will retain their current GMS/PMS contracts and independent status, but will sign a legally binding ‘integration agreement’ with the ICP provider to support them in the delivery of integrated services.
The idea with this model is that it doesn’t fundamentally change the way that primary care operates today, so is likely to be much easier to achieve. Practices simply formalise the obligations on all parties necessary to achieve a better functioning, more integrated healthcare system, and agree to share the risks and rewards.
There is an implicit assumption by NHSE that a local Trust will hold the ICP contract and that GP practices will be happy to sign the integration agreement with the Trust. In reality, practices would be well advised to obtain legal advice before signing such an agreement, since the current template contains some surprising clauses, such as unlimited liability in the event of certain things going wrong. Any changes should be negotiated with the ICP provider during the tender process, as signed integration agreements are a pre-requisite to winning the ICP contract so this is when practices would have most negotiating leverage.
2. Full integration
In this variant, GP practices would ‘suspend’ their GMS/PMS contracts and instead either be acquired by the ICP provider or subcontract to the ICP provider on terms to be agreed directly between the parties.
This is clearly much more radical than partial integration as it moves primary care towards being a salaried service. There is provision in the standard ICP contract for salaried GPs to be on BMA model terms, but this is unlikely to be much consolation for those that wish to remain as independent contractors. If GPs find that the new arrangements do not work, there is an option to un-suspend their GMS/PMS contracts, but it is not, at present, clear how this would work, since most practices in an integrated model will cease to exist as independent businesses in any meaningful sense.
Other significant changes in a full integration model include:
- Practices will no longer negotiate with NHS England, CCGs or Local Authorities. They will either be subsumed into, or contract with, the sole ICP provider. This largely removes the statutory role of LMCs.
- Whilst there appears to be an assumption that Trusts will usually be the ICP contract holder, there is no reason why this should be the case. Indeed, CCGs will be obliged to offer the ICP contract for competitive tender. This puts primary care in the driving seat, since it is not possible to win an ICP contract without the support of primary care. This makes it highly possible that well organised GP federations or super-partnerships could successfully tender in due course for ICP contracts, or agree to partner up with other public or private partners to do so. Hospitals and other community care providers would then have to subcontract from GPs, not vice versa. This would be an interesting situation as it could provoke accusations of privatisation.
Conclusion
The imminent arrival of ICP contracts has already prompted change up and down the country. We’ve seen hospital Trusts acquiring an interest in local GP practices, which could be a first step towards a fully integrated model. In some areas, the whole locality is actively preparing for the partially integrated model.
One thing is clear, and that is the fully integrated model in particular would represent an enormous change to the way primary care has always worked. Whilst change always presents an opportunity for some, it will inevitably present challenges to others.
If you would like to discuss the ICP contract or any other matters with one of our specialist solicitors, please contact Nils Christiansen on 01483 511555, n.christiansen@drsolicitors.com for an initial chat.