Chancellor Stands by Controversial NHS Pensions Taper

Peter Russell

May 22, 2019

There are no current plans to scrap the tapered annual allowance for pensions, Philip Hammond, the Chancellor of the Exchequer said, despite acknowledging that the scheme is having an impact on retaining senior clinicians in the NHS.

However, Mr Hammond said he was discussing a solution to the pensions issue with Matt Hancock, the Secretary of State for Health and Social Care.

The problem dates back to April 2016 when the Government introduced the taper with the intention of reducing pension tax relief for high earners.

The British Medical Association (BMA) has repeatedly warned that consultants will consider refusing to undertake extra clinical duties and would consider early retirement to avoid large and unexpected tax bills.

Treasury Questions in Parliament

However, Mr Hammond told the House of Commons yesterday that the NHS pension scheme, in common with other public service schemes, was "among the most generous pension schemes available in this country today".

However, he acknowledged that "there is some evidence that the annual allowance charge is having an impact on the retention of high-earning clinicians in the NHS".

During questions to the Treasury, Ruth Jones MP (Labour, Newport West) asked: "With GP numbers continuing to fall, ongoing shortages across consultant specialties, and armed forces doctors currently experiencing a 23% workforce shortfall, how is the Chancellor going to help doctors and patients by resolving the unintended consequences caused by the annual tapered allowance and lifetime annual allowance that are leading to doctors who would otherwise be happily continuing to work having to leave the profession to avoid disproportionate and unfair tax bills?"

David Linden MP (SNP, Glasgow East) echoed concerns in the profession about recruitment and retention. "Given that a recent survey shows that 40% of doctors have retired early as a result of pension tax changes, I would urge the Chancellor to look again at this and make as strong a case as possible to the Health Secretary so that he can make sure that we have the staff in the NHS to serve our communities," he said.

Paul Masterton (Conservative, East Renfrewshire) urged the Chancellor: "Given that the costs of increased waiting times, delayed diagnosis, and knowledge gaps far outweigh the tax revenue generated, would not the sensible and fiscally responsible thing be just to scrap the taper altogether?"

Mr Hammond said he had been in talks on the issue with the Health Secretary "for some time", and added: "I think we are close to reaching a conclusion." He said he expected Mr Hancock to make an announcement "as soon as possible".

The BMA said it was pleased that ministers appeared to be taking the implications of the taper seriously. Dr Paul Youngs, BMA Pensions Committee chair, said: "At a time when the NHS is in the grip of a workforce crisis, punitive tax rules on doctors' pensions continue to drive away experienced and valuable medics from across the health service, from GPs working in our communities, to hospital consultants providing specialist care.

"Armed forces doctors, treating our servicemen and women at home and abroad, are also affected, as the MoD faces its own medical workforce shortage."

He added: "Crucially, any solution put forward must remove doctors entirely from the absurd situation whereby they are punished for going above and beyond to treat their patients."

Making Sense of the Taper

NHS pension scheme members are currently subject to an annual allowance of £40,000 contributions to their pension pot with the benefit of tax relief. However, since 2016, this annual allowance can be reduced via the taper where an individual has 'adjusted' income of more than £150,000 from taxable income and pension growth, and a 'threshold' income of over £110,000 taxable income, net of employee pension contributions.

This could mean that for every £2 that adjusted income exceeds £150,000, a scheme member would 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 £1.055 million, which includes all pension benefits accrued from the NHS scheme and other pensions, but excludes the state pension.

A 'Ludicrous and Capricious System'

Earlier this month, a report by Royal London found that the policy was complex, unpredictable, created 'cliff edges' where a clinician can suddenly be worse off for working an extra shift, and could generate large lump sum bills.

It described the creation of the tapered annual allowance as "one of the worst examples of unnecessary complexity in tax legislation in living memory".

The report concluded that speedy abolition of the taper would be the best solution to a situation in which "consultants have spent more time talking about pensions in the last 6 months than about patients".

Commenting, Steve Webb, director of Policy at Royal London, and a former pensions minister in David Cameron's coalition government, said: "It is utterly absurd that doctors are having to consider their pension tax position before deciding whether or not to take on an additional shift or cover for an absent colleague. 

"The NHS is structured around senior clinicians taking on additional roles and responsibilities and this whole culture is being undermined by a bewildering system of pension tax relief. 

"Rather than tinkering with the NHS pension scheme, the Treasury should abolish the ludicrous and capricious system of tapering annual allowances for tax relief."

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