Comment

Perfect storm brewing over NHS pensions and tax rules

Dr Phil de Warren-Penny, deputy co-chair for negotiations on the BMA consultant committee, discusses the perfect storm brewing in light of changes made to healthcare professionals’ pension rules.

Separate changes to the current system of pension taxation and significant change of the NHS pensions scheme have converged, leading to a ‘perfect storm’ of punitive taxation that results in senior doctors regularly receiving sudden and unexpected tax bills of four, five, and in some cases, six figures.

These issues specifically relate to the reduction of the annual allowance for pension growth, the introduction of the tapered annual allowance, and the introduction of the 2015 NHS pension scheme, and how the annual allowance is calculated and applied to those people who were given no option but to become a member of more than one NHS pension scheme.

The presumably unintended consequences of the current situation results in unfair and punitive charges being levied on doctors who can be charged effective tax rates of well over 100% on their earnings with no subsequent benefit, and in some cases a reduction, in their pension.

The tapered annual allowance, introduced in 2015, results in a ‘cliff edge’ phenomenon that actively discourages doctors from taking on vital additional work. A very small amount of extra work around the threshold income could result in £13,500 of additional tax, so in effect doctors end up ‘paying’ to do non-pensionable additional shifts or fee-paying work. To avoid this, many doctors will need to limit their income by reducing hours to remain below this threshold.

These charges are having a detrimental effect on the system within which we work – as consultants are financially penalised, they are less willing to cover gaps in rotas, undertake waiting list initiative work, or do additional PAs.

Patients and other healthcare colleagues are experiencing hardship as these impacts are then felt hospital-wide. As awareness amongst consultants of the personal financial consequences increases, the number continuing to work either regular or ad-hoc overtime will decrease dramatically.

This is clearly an unsustainable situation and the BMA has been working hard to secure a change in current taxation rules.

We understand that changing current tax and pension legislation is a complex issue and may take time. However, without swift and decisive action, the NHS faces a severe workforce crisis as doctors are left with little alternative but to reduce the number of hours they work for the NHS or take early retirement.

In order to prevent this crisis and maintain vital services for patients, the BMA has outlined some immediate mitigations in the gift of employers to stabilise the workforce. We have asked for:

• A jointly agreed, UK-wide policy facilitating the recycling of all the employer’s pension contributions in a fashion which is cost-neutral to the taxpayer and maintains the individual’s total reward package;
• A commitment to create a UK-wide scheme for NHS staff to retain or purchase death-in-service benefits;
• We would like to enter discussions to review the pay-scales of the consultant contracts across the UK to smooth the incremental pay rises that trigger disproportionately large bills.

In addition, the BMA wishes to meet with the Treasury to address the fundamental problems with the annual allowance (and particularly the tapered annual allowance) as well as the unfair way in which annual allowance is calculated for those in the NHS who were left with no choice but to become a member of two separate NHS pension schemes.  

We believe that unless such actions are taken, doctors will be left with no option but to individually reduce their working hours to avoid large tax bills, thereby exacerbating an already acute workforce crisis and seriously jeopardising the sustainability of the NHS.