The government has launched its promised consultation on proposals to give senior NHS doctors and nurses access to more flexible pensions, in a bid to stem the numbers of clinicians reducing their working hours or resigning because of increases in their tax bills
The consultation follows months of difficulties for GP practices and hospitals, where staff sought to reduce their hours or take early retirement because of concerns about the tax implications of breaching the rules on the annual allowance.
The Department of Health and Social Care (DHSC) estimates that a third of consultants and GPs may be turning down extra shifts because of how the NHS Pension Scheme interacts with the wider pension tax rules.
After representations from the British Medical Association and others, the government initially suggested a consultation based around a 50:50 rule, allowing clinicians to halve their pension contributions in exchange for halving the rate of pension growth.
However, this met with strong opposition from the medical profession as being insufficiently flexible.
The new proposals mean GPs and other senior clinicians have freedom to individually control how much their pension pot grows, allowing them to maximise the amount they can save without facing significant pension tax bills having breached limits on tax relief.
The new proposals now out for consideration include giving clinicians the ability to choose a personalised pension growth level at the start of each tax year and pay correspondingly lower contributions. The level chosen would be a percentage of the normal scheme contribution in 10% increments, for example 50%, 30%, or 70% of the full accrual level.
Clinicians will also be given the option to fine-tune pension growth towards the end of the tax year when they are clearer on total earnings – this will allow them to ‘top-up’ their pension pot to the maximum amount without hitting their tapered annual allowance limit.
Where an individual has a large increase in pensionable pay, phasing over a number of years the amount by which the new pay level contributes towards their pension – this smooths any spike in pension growth that can cause sudden pensions tax charges.
The department say it will also work with employers and staff representatives to develop a new tool to help clinicians tailor the new flexibilities to support their individual preferences, helping them to identify the best pensions approach to maximise their clinical work without facing large tax bills.
For 2019-20 NHS Employers has issued short-term guidance on possible local approaches that employers can consider taking to mitigate the impact of pension tax on their workforce this tax year; this includes consideration of recycling unused employer contribution into salary. The government says its response to this consultation will provide clarity around such approaches after flexibilities are introduced.
Subject to the response to the consultation, the DHSC plans to introduce the new proposals in time for the start of the new tax year.
However, the consultation proposals relate solely to the NHS in England and Wales. A survey conducted this month by BMA Scotland found that 65% of more than 600 clinicians polled reported either having received a tax bill relating to pension contributions or were actively expecting one.
The survey also revealed that almost a quarter of those who took part were considering retiring early because of the pension tax arrangements, which can see workers charged considerably more in tax than they are actually paid for doing the work.
Graeme Eunson, chair of the BMA Scottish consultants committee, said: ‘The health secretary and the Scottish government have acknowledged the issue, taken our concerns on board, and we welcome they have also been pushing the Treasury to act.
‘Recently, the English Department of Health launched new guidance which includes greater flexibility in the pensions scheme. This is a step forward and we desperately need the Scottish government to act quickly to match or better this offer – which they have indicated they will – and we are pushing them hard to publish the details.’
The DHSC consultation closes on 1 November.