NHS Pension Rules To Be Overhauled: Govt 

Peter Russell

August 07, 2019

Urgent changes to pension rules would be introduced to allow senior NHS clinicians to take on additional work without fear of incurring large tax liabilities, the Government announced today.

Ministers said changes would allow consultants and other higher earners to 'scale down' their pension contributions without losing out on employer contributions.

The Department of Health and Social Care (DHSC) said the changes, made in partnership with the Treasury, would mean senior staff could run additional clinics for patients.

'Perverse and Ill-thought Out' Rules

The British Medical Association (BMA) welcomed the changes to "perverse and ill-thought out tax legislation" which it said was having a damaging effect on the health service. However, it warned that further pension taxation reform would be needed.

The DHSC promised to explore ways to restore the incentive for higher paid health workers to continue to belong to the NHS pension scheme and take on additional work and responsibilities after new 2016 pension rules drew increasing numbers of higher earning doctors into upper taxation bands through annual and lifetime contribution caps.

'Taxation Madness'

Changes meant the annual tax-free allowance of £40,000 could be reduced via a 'taper' applying to high earners with taxable income from any source which exceeded £150,000. The taper effectively meant that for every £2 that adjusted income exceeded £150,000, a scheme member lost £1 from their annual allowance.

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

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

The BMA, which criticised "taxation madness", repeatedly warned that the pension rules would lead to more senior doctors refusing to hold extra clinics, considering leaving the NHS, or taking early retirement.

Pension Flexibility

Today's proposals, announced by the Health Secretary and the Chancellor, meant that higher earners would be able to reduce their contributions in 10% increments at the start of each year to give them the headroom to take on additional work without breaching their annual allowance. Employers would then have the option to recycle their unused contribution back into the individual clinician's salary, the Government said.

Alongside the change, the Treasury said it would review how the annual allowance taper operated "to support the delivery of public services, such as the NHS".

The DHSC said it hoped the changes would help the NHS retain the most skilled professionals as part of a drive to cut waiting times and improve services in line with ambitions set out in the Government's NHS Long Term Plan.

Matt Hancock, the Secretary of State for Health and Social Care, 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 announcement on pensions came during a week in which the Government made commitments to the health budget, including a pledge for an extra £1.8 billion for the NHS.

'Further Reform Needed'

Commenting on the latest announcement, Dr Chaand Nagpaul, BMA council chair, said: "We acknowledge this step forward by the Government. After a year's tireless lobbying by the BMA on the damaging effect that perverse and ill-thought out tax legislation is having on our NHS, its doctors and patients, it is good to see the Government finally sitting up, taking notice and proposing action.

"We said clearly when it launched that the earlier consultation on the 50:50 model – whereby doctors and employers halve what they put into their pension pots – was not fit for purpose and we are pleased that the Government has heeded the BMA’s concerns by ditching it. This method is overly restrictive and can leave doctors putting either too much or too little into their pensions.

"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 what the employer would normally contribute being paid back into doctors' salaries.

"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."

Also commenting in a statement, Siva Anandaciva, chief analyst at The King’s Fund, said: "The government's proposed changes to pensions will help to retain some senior clinicians, but it appears that health service managers have been left out of the plans, despite high vacancy rates in  board roles such as director of operations, finance and strategy, something the pensions issue will only exacerbate.

"Chronic staff shortages are now the single biggest challenge facing the health service today, with nearly 100,000 vacancies in NHS trusts. In addition to pension changes, solving the NHS workforce crisis will require a raft of measures, including financial incentives to attract more nurses, and ramped-up international recruitment to plug the immediate staffing shortfall."

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