The Annual Reconciliation Report (ARR) process for the 2022-23 financial year opened on Compass on 1st April 2023. The ARR needs to be completed by 30th June 2023, although this deadline has now been extended to the middle of July for the last couple of days.
The ARR is the process of submitting all dentists net pensionable earnings (NPE), or net pensionable earnings equivalent (NPEE), if the dentist is not a member of the NHS pension scheme. The NPE finalises the pension contributions due for the year for the dentist. This is compared to the actual contributions made in the year, with an adjustment made on the July NHS schedule for any under or overpayment made by the dentist.
For those dentists that have looked on Compass at the ARR section, you will notice that there is no change to the ARR screen. This is despite the pension contributions changing part way through the year. This can cause dentists who have received less NHS income in the first 6 months of the year compared with the second 6 months of the year to pay more pension then they should.
We’ve asked Tom Slevin, Dental Client Services Director to explain the issue, how this can result in additional pension to be paid and how we can help.
Take it away Tom…
After years of delays, on 1st October 2022, the NHS pension contribution tiers and rates were amended for the first time since 1st April 2015. With dentists paying pension contributions throughout the year based on estimated NPE, for the first 6 months, the dentist would have paid pension based on the old contribution rates. The rate was then amended from October to one of the new pension rates.
The old pension rates from 1st April 2022 to 30th September 2022 were:
The new pension rates from 1st October 2022 to 31st March 2023 were:
With the ARR on Compass just requiring the NPE for the financial year and not being split between the two periods above, how are the NHS going to work out the pension contributions due?
ARR pension contribution calculation
We understand that the NHS will be calculating the pension due for the dentist by pro-rating the NPE across the two periods. For a dentist that has worked at the practice from 1st April 2022 to 31st March 2023 the NPE will be split evenly across the two periods. This results in their effectively being 17 pension rates in operation across the year for these dentists as follows:
However, situations can arise where the above rates are higher than what would actually be payable for a dentist if the NPE was split accurately across both periods.
For example, a dentist with an NPE of £90,000, will end up paying NHS pension contributions of £12,150, or a rate of 13.5%. However, if their NPE was £35,000 in the 6 months to 30th September 2022 and £55,000 in the 6 months to 31st March 2023, applying the appropriate rates in both periods would result in pension contributions of £11,800, or a combined rate of 13.11%. This dentist could pay £350 more in pension contributions (for no extra benefit in retirement) due to the calculation adopted on Compass.
We understand the BDA have raised this with NHSBSA, and are asking for a tailored solution that dentists can request to use if they can show their NPE is not equivalent across the two periods and this puts them in a position of paying more pension.
There may also be further issues where a dentist has started at a new practice in the year, or left a practice in the year. We understand the calculation will pro-rate the NPE across the 2 periods in line with the start/end date on Compass. For example, a dentist who started at a practice on 1st July 2022 and was still working at the practice at the end of March 2023 will have their NPE pro-rated 1/3rd to the period before 30th September 2022 and 2/3rds to the period after 1st October 2022. Again, this can cause an overpayment of pension contributions if monthly NHS performance was not uniform across the year.
The above also relies on the dental practice accurately updating the Local Area Teams when dentists have started at or left the practice. The NHS will be relying on this data being accurate in Compass and so dentists should ensure that Compass is showing the correct start or end date on each contract they have worked on in the year.
We can help
Our team of experts have extensive experience in helping both dental practices and associate dentists with their Annual Reconciliation Report requirements, as well as being able to advise on NHS pension issues associated with this. If you need assistance with this or any other dental financial matter, give us a call on 0151 348 8400 or email dentists@djhmittenclarke.co.uk.
