DHSC consults on remedy for NHS pension ‘tax trap’

The Department of Health and Social Care (DHSC) is to consult on proposals giving full flexibility over the amount senior clinicians put into their pension pots, to stem the rising numbers of doctors cutting their hours and leaving the NHS because of tax issues

The move marks a sharp turnaround, as the latest consultation replaces one announced at the end of July. This advocated the so-called 50:50 proposal, allowing clinicians to halve their pension contributions in exchange for halving the rate of pension growth.

The replacement plan for NHS pensions goes much further, with DHSC saying that starting from next financial year, the new rules would allow senior clinicians to set the exact level of pension accrual at the start of each year.

For example, consultants, surgeons, GPs and others at the high end of NHS salary scales could agree 30% contributions for a 30% accrual rate, or any other percentage in 10% increments depending on their financial situation.

This would give them room to take on additional work without breaching their annual allowance and facing tax charges.

Employers would then have the option to recycle their unused contribution back into the clinician’s salary.

At the same time the Treasury has said it will review how the tapered annual allowance supports the delivery of public services such as the NHS, and will consider whether to increase the £150,000 salary threshold.

Matt Hancock, health and social care secretary, said: ‘These comprehensive proposals will give doctors the pension flexibilities they have called for and need to make sure they are rewarded for extra work.

‘We are taking immediate action and I hope these flexibilities will encourage our top NHS staff to fulfil the dedication of their mission: to care for their fellow citizens in time of need.’

The problems have arisen because of the introduction in 2016 of a tapered annual allowance for pension contributions for individuals whose taxable yearly income exceeds £150,000. This means that the £40,000 annual allowance is steadily reduced down to a base level of £10,000.

The British Medical Association (BMA) has pointed out that in the NHS pension scheme the amount put into the pension each year is multiplied by a factor of between 16 and 19, so small increases in pensionable pay can generate very large theoretical pension growth. With a three-year carry over this problem is only just becoming apparent for many consultants.

It says 30% of consultants have received an annual allowance charge over the last two years, while its modelling suggests all full-time and many part-time consultants will be affected by this additional tax charge during their career.

A BMA survey of 6,000 doctors from hospitals and general practice across England, Wales and Northern Ireland at the beginning of August revealed that 42% of GPs and 30% of consultants had already reduced their working hours over actual or potential pension charges, while 34% of GPs and 40% of consultants said they were planning to do so.

Under the proposed changes, senior staff will be able to decide their level of pension contributions at the start of each year, enabling them to select a level that gives them the ‘headroom’ to take on additional work without breaching their annual allowance.

‘Critical to that is introducing flexibility into the system so that our hospitals have the staff they need to deliver high-quality patient care, which is why we’ve listened to concerns and will be reviewing the operation of the tapered annual allowance.’

Dr Chaand Nagpaul, BMA council chair, welcomed the new approach, describing the 50:50 option as ‘not fit for purpose’.

‘The government has listened to us on offering full flexibility – meaning doctors can choose the amount they and their employer wish to put away – and we note the assurance that this will not mean doctors “losing out on the value of unused employer contributions”.

‘This must mean full recycling of the entire employer’s contribution being paid back into doctors’ salaries,’ he said.

However, he warned further action was required. ‘The new proposed flexibilities will provide short-term relief for many doctors, but they themselves do not tackle the core and underlying problem. This lies in tax reform, and as we have said before, it is the overhaul of the annual allowance and tapered annual allowance, that will make a difference to all doctors, including consultants, GPs and medics in the armed forces,’ Nagpaul said.

Chancellor Sajid Javid said: ‘This government is committed to ensuring that British people see a real difference in public services, including getting quicker GP appointments and a reduction in waiting times.

Pat Sweet | 8 August 2019

Pat Sweet |Reporter, Accountancy Daily [2010-2021]

Pat Sweet was the former online reporter at Accountancy Daily and contributor to the monthly Accountancy magazine, pub...

View profile and articles

Be the first to vote

Rate this article

Related Articles