Government to consult on NHS pension changes to spare senior doctors' tax bills

4 June 2019

The government is consulting on changes to the NHS pension scheme that should protect the UK’s most senior and experienced doctors from substantial tax bills.

In April, Moneywise reported that many senior doctors were reducing their hours, quitting the NHS or taking early retirement to avoid disproportionate additional tax charges on their pensions.

The problems have emerged as the result of successive reductions to pension savings allowances over the last 10 years which limit the amounts doctors are able to pay into their pensions.  

The British Medical Association has repeatedly warned the Chancellor that unless it makes changes to the NHS pensions there will be a serious knock on effect on patient care as more doctors either leave the health service or reduce the number of hours that they work.

Central to the Department of Health and Social Care’s new proposals is a 50:50 contribution option. This would allow doctors to reduce their pension contributions by half in exchange for half the rate of pension growth.

This, it claims, would mean doctors could freely take on additional shifts to reduce waiting lists, fill rota gaps and take on additional supervisory roles without fear of incurring a tax bill.

However, Kay Ingram, director of public policy at adviser LEBC says the proposals treat the cause not the symptoms.

Under the new proposals, higher earners who take on extra work will only be able to reduce their tax bill by lowering their rate of pension accrual.

She says: “This is in effect a pay cut, only partly compensated by lower personal contributions being required.  They will need to take advice to understand the tax implications just as they do now.”

Ms Ingram also suggests that the proposals may also discriminate against other higher earners. “This change does not help other higher paid workers, equally highly taxed on their pension savings when they undertake extra work or accept greater responsibility.  

"Thousands of police officers, teachers and private sector employees are all suffering the same disincentive to work harder, when doing so restricts their eligibility for pension savings tax relief.”

Steven Cameron, pension director at Aegon adds: “There has been growing disquiet among senior NHS staff about pension arrangements with significant numbers incurring tax bills due to personal and employer contributions, or increases in pension entitlements, exceeding pensions tax allowances. 

"The prospect of tax penalties on pensions contributions has been cited by many NHS staff as a reason for choosing to retire early, a situation which means a great deal of skill and expertise is leaving the healthcare profession earlier than it otherwise would.

“We welcome the plans to address this situation by reforming the NHS scheme. Many private sector schemes allow individuals at risk of breaking pension allowances to swap pension contributions for increases in pay and this should be made available to NHS employees. 

"The alternative of granting special allowances just for NHS employees would have been unfair and would have further complicated the pensions tax system.

“However, we would encourage the Government to review the current maximum fund, or lifetime allowance, that can be built up in a pension without tax penalties. The current limit of £1.05m may seem like a lot, but it could buy a lifetime income at age 60 of around £20,000 to £25,000 depending on whether you’re buying a single or joint life annuity and how much inflation protection you want. This sum would certainly not be regarded as a particularly high income for people of working age.”

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