Will 'Taxation Madness' Force Consultants Out of the NHS?

Peter Russell

March 05, 2019

The Department of Health and Social Care (DHSC) has promised to explore ways to restore the incentive for higher paid NHS staff to continue membership of the service pension scheme and take on additional work and responsibilities.

It comes amid accusations that Government changes to pensions are driving experienced doctors out of the health service and into early retirement because of "punitive" tax bills.

Consultants have called on the Government to review rules on pensions legislation introduced in 2016, which they said had led to "excessive rates of taxation" for some hospital doctors.

They blame annual and lifetime contribution caps for drawing higher earning doctors into upper taxation bands.

Allowances

NHS pension scheme members are currently subject to an annual allowance of £40,000 after which tax charges apply.

However, since 2016, this annual allowance can be reduced via the tapered annual allowance which applies to high earners with taxable income from any source which exceeds £150,000. The taper means that for every £2 that adjusted income exceeds £150,000, a scheme member will lose £1 from their annual allowance.

For very high earners, the taper can squeeze the annual allowance to just £10,000.

Scheme members are also subject to a lifetime allowance of £1.02 million, which includes all pension benefits accrued from the NHS scheme and other pensions, but does not include the state pension.

A Looming Skills Shortage

The British Medical Association (BMA) has warned that consultants faced with large, unexpected tax bills will have to consider abandoning extra clinical work and consider taking early retirement, exacerbating a shortage of skilled clinicians.

"People are looking at the value of doing anything extra, and it seems to be financially not worthwhile now, or even worse than not worthwhile," Dr Dan O'Carroll, an emergency medical consultant from Walsall, and author of Medscape UK's A&E Perspective , told us.

Last week, the BMA's consultants' committee conference heard complaints that effective tax rates increased to a minimum of 62.5% for some clinicians at certain points in their career.

In his opening speech, acting Chair, Dr Gary Wannan, described the pension situation as "taxation madness" and said: "It just simply cannot be right that these unfair and pernicious regulations are landing hard-working doctors with exorbitant tax bills for simply doing their jobs to the best of their abilities."

Motion for Reform

Dr Andy Thornley, a consultant cardiologist from the BMA's North East Consultants Council, who proposed a motion which urged reform, said pensions rules were largely responsible for "an acute workforce crisis" at one hospital in his region which had seen four ITU consultants reduced to one, and eight anaesthetic consultants who contributed to out-of-hours care reduced to two.

"Colleagues have been covering this unit and doing extra work for additional pay up until this point," he told the conference. "However, it's become increasingly clear to them that doing this additional work is just not worth it."

The motion called for:

  • The scheme administrator to routinely issue pension statements relating to pension growth and potential annual allowance charges

  • The BMA to lobby the authorities in all four UK nations to alter the annual allowance calculation so that high earners in the public sector were not subjected to excessive taxation

  • All NHS employers to pay the employers contribution to employees who have opted out of the NHS pension scheme due to annual allowance or lifetime allowance tax charges as part of the 'total reward package'

BMA Member Survey

A recent survey by the BMA found that pensions dissatisfaction was a principle reason driving many to cut hours and retire early.

Six out of 10 consultants intended to retire at or before the age of 60, it found, with concerns about annual and lifetime allowances cited by 55.7% of respondents.

"I'm certainly looking now at going in 9 to 10 years' time instead of working to 60, which was my original plan," said Dr O'Carroll.

The BMA survey also found that:

  • Fewer than 7% of consultants said they expected to remain working in the NHS after the age of 65

  • Over a third of all respondents expected to reduce the number of days they worked in the NHS by up to 50%

  • Almost 18% were in the process of planning to reduce their working time even further, including a complete withdrawal from service

DHSC Response

On Monday, the DHSC acknowledged concerns about the impact of pension tax, particularly for those subject to a tapered annual allowance, which could "reduce the incentive for higher earners to continue scheme membership or increase their earnings by taking on additional work or responsibilities".

In its response to a consultation on the NHS pension scheme, it also said that in cases where an annual tax charge was incurred, members could settle their liability through the Scheme Pays facility in which the NHS pension scheme recoups the money by reducing the value of the individual's pension by an amount equivalent to the tax charge plus interest.

A DHSC spokesperson said: "Doctors are the backbone of the NHS, providing excellent, safe care to patients around the clock.

"It is important we retain and maximise these skills and as part of the long-term plan, the workforce implementation plan we are publishing later this year will address what measures are appropriate in the context of achieving this."

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