Pension tax driving half of doctors to retire early

30 October 2019

Doctors are retiring earlier than planned to avoid pension tax bills of tens of thousands of pounds, according to new data


Complex pension taper rules introduced in 2016 are sending doctors to an early retirement, putting the NHS at risk of greater understaffing and patients facing higher wait times.

Almost half (45%) of doctors surveyed by the Royal College of Physicians and its Scottish counterparts say they have decided to retire younger, with 86% of them citing pension concerns as one of their reasons, 

The survey of 2,800 doctors nearing retiring age found in the last two years 38% of clinicians aged 50 to 65 reported having had an annual pension allowance tax charge due to exceeding their pension threshold.

Tax bills for pension allowance breaches are becoming much more common since rule changes in 2016 cut the amount savers can put away each year.

Most individuals can squirrel away up to £40,000 annually, but this amount is tapered away for higher earners to as little as £10,000.

The complexity of the taper makes it hard for savers earning over £110,000 to work out their allowance and stay within the rules.

Members of defined benefit schemes, such as doctors in the NHS pension, are particularly hard hit because their contributions are the result of largely hidden calculations about the future value of their pot.

Breaches to the annual allowance must be paid immediately on money that may be tied up in a pension for decades.

Doctors have reported these bills can exceed their annual salary, resulting in many of them seeking early retirement or reduced hours to avoid the complications and cost.

Of the senior clinicians surveyed by the Royal College, 62% said pension tax rules meant they now avoided extra paid work such as waiting list initiatives or covering for colleagues. A quarter have reduced the number of programmed activities they work.

More than a fifth (22%) reported having stepped down from a leadership or other role with extra remuneration that would trigger a pension tax charge.

One survey respondent says:“As a consequence of taking up a role as deputy medical director, I received £85,000 tax charge. I work harder than ever, took up a senior role and have this. 

“Thankfully I could pay with [pension] scheme pay otherwise I would have had to sell my house. I believed in the NHS, worked ridiculous hours as a junior, believing in a greater good but now I feel so unvalued and as though it was all an utter mistake.”

Another respondent adds: “I received a £92,000 tax bill due to receiving an ACCEA award, running a regional specialist service and undertaking a leadership role.

"I have had to come out of the pension scheme in my 40s due to punitive projected tax costs and I now work the equivalent of two sessions per week unpaid. I intend to leave the NHS at the earliest opportunity."

Royal College of Physicians president Professor Andrew Goddard said the findings of the survey demonstrate the need to urgently reform the pensions system in this current tax year to prevent additional pressure on the NHS.

“We simply cannot wait until the next tax year for a solution, every week the issue remains more hard-working doctors will reduce their hours, driving up waiting times for patients and driving down staff morale,” he says.

A government consultation is underway to make the NHS pension scheme more flexible, with changes intended to be implemented in April 2020 that would allow staff to lower their contribution rates to stay within the limits.

This could pave the way for more widespread reforms across other sectors facing similar problems of hefty annual allowance tax bills.

Graham MacLeod, financial planning director at wealth manager Tilney, says: “Such tinkering, while welcome, is unlikely to resolve the crisis without the scrapping of the tapered annual allowance. 

“The costs of addressing this will ultimately need to be offset against the tax receipts to the Treasury arising from these pension tax charges.”

“But with the 6 November 2019 Budget now pulled and a new Budget unlikely until 2020 following a General Election, the opportunity to hit the nail on the head and address this issue head on has effectively evaporated for many months, a period when the NHS pension crisis will rumble on, risking rising waiting lists for surgery.”

Key changes proposed for the NHS defined benefit pension scheme

  • Choose a personal accrual level and pay correspondingly lower employee contributions. For example, 50% accrual with 50% contributions, 30%:30% or 70%:70%
  • Fine tune this during the pension year, updating the chosen accrual when clearer on total income.
  • Ancillary benefits such as ‘death in service’ life assurance and survivor benefits would continue in full.
  • Phasing the ‘pensionability’ of large pay increases for high-earners.
  • Make the impact of pension ‘scheme pays’ for tax bills clearer by including the pension debit on annual pension statements so that members can see the adjustment to their pension at retirement.
  • Provide access to high quality education and information


So then.... A question or two raises its head...


1) £110,000 is far too low a limit before tapering kicks in, so needs to be raised or
2) £110,000 is far too much to be paying the vast numbers of doctors that thus enables them to retire early or choose to not work extra, so should be lowered....

.. for it can't be both that are false (but both could be true...)

Tax trap causing senior doctors to have to retire early.

Limits to pension tax relief is necessary as a general rule, but NOT in the case of highly qualified doctors working within the NHS who are currently being far too heavily surcharged because of the complexity of the NHS pension scheme. This pension scheme is a very good one and our doctors fully deserve to benefit from membership. However, we the public will suffer, literally, if massive tax charges cause top doctors to have to retire early. A special exemption to the tax rules MUST be brought after the 13 December (post General Election) as a matter of great urgency if we are to keep such senior and experienced doctors working in the NHS. Such a concession should not be given to well paid hospital managers, unless they are senior doctors themselves, even if members of the NHS Pension Scheme, or indeed to any other groups of highly paid executives in any other profession or industry.

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