You’re doing it wrong says Alan Suggett
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- Published: Tuesday, 12 April 2016 07:46
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With the time of the year approaching when NHS practice owning dentists must complete the pension annual reconciliation return (ARR), Alan Suggett, Dental Business Unit Partner from UNW accountants and regular on GDPUK warns that many, perhaps most, practice owners are calculating their associate’s pay incorrectly, and too low. The problem is, Alan says, that many principals think they understand how the calculation works – but in fact they don’t.
Alan explains: In fact the correct pensionable earnings calculation is remarkably simple: associate pensionable earnings is equal to the amount payable to the associate in respect of NHS work carried out in the year.
The problem started with the 2006 new NHS contract, which, for the first time, created a system of practice based NHS pensionable earnings, rather than the previous individual calculation. Before 2006, errors in pensionable earnings calculations were rare, as the calculation was easily performed automatically.
When the 2006 contract came into being, it was no longer an automatic calculation as it relies on the contact holder ‘provider’ (usually the practice principal, or by delegation the practice manager) to perform a calculation specific to each ‘performer’ (associate).
Although the ARR system has changed since 2006, the problem hasn’t changed. The problem is that many principals think they understand how the calculation works – but in fact they don’t.They think that the correct pensionable earnings entitlement for each associate is 43.9% of the associate’s ‘gross’ fees generated (where ‘gross’ is usually calculated as the number of UDAs performed multiplied by the associate’s agreed UDA rate – which might not be the same as the practice contracted UDA rate).
In fact, Alan advises, the correct pensionable earnings calculation is remarkably simple: associate pensionable earnings is equal to the amount payable to the associate in respect of NHS work carried out in the year.
Finally, he asks, what are we getting excited about; how much of a problem is it?
Based on average NHS associate earnings (derived from the NASDAL annual benchmarking surveys), the actual annual loss of pension is quite small. However, as those who are not members of the NHS pension scheme are well aware, every £1pa of pension (depending on age and other factors) costs much more than £1 to buy.
It is estimated that the average real financial loss is between £2,000 and £3,000 pa, and as the problem has existed since 2006, a reasonable estimate of average financial loss for those associates affected could be of the order of £25,000.
Which is the higher figure?
Hi Alun,Hope you are well.
Thanks for showing an interest in the dental profession.
There is an assumption ( I think ) that the actual payment made to associates is higher than 43.9% of the contract £/UDA figure.
This is not always the case. OK it is not the case for me!
Contract values i.e. £/UDA paid to the contract holder have often risen over the last few years. whilst "associ ates" £/UDA has been unchanged.
Hence associates are often paid a lower figure than 43.9% of the contract UDA value.
So which is the correct figure?
I expect you will have studied the regulations more assiduously than dentists who actually have to treat patients.
I should ask the DH/BSA but we know their answers are changeable!
Regards
Mark
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