Punitive Pensions Continue to Drive Doctors out of the Profession

Pension tax pressures are continuing to lead experienced doctors to retire early, at a time when there's a huge demand for them to stay working in the NHS.

Various aspects of the pension system have combined to make a perfect storm. It means for many high-earning doctors in their mid to late fifties feel it makes better financial sense to retire.

Retirement Age is Falling

A 2019 survey by the Royal College of Physicians revealed that almost half (45%) have decided to retire at a younger age than previously planned, with 86% of them citing concerns over pension tax as one of their reasons.

The British Medical Association (BMA) predicts that more doctors than ever are likely to retire early because of pension issues, coupled with low morale and a heavy workload.

"We know that since 2008 the number of doctors retiring early has increased nearly fourfold. These doctors who are mainly between the ages of 55 and 60 would ordinarily would have stayed on but as a result of the pension tax penalties, feel they have had no option but to retire," Chair of the BMA's Pensions Committee, Dr Vishal Sharma, told Medscape UK.

"The situation is likely to get worse as we have an increasingly ageing workforce with around 13% of the consultants and a similar proportion of GPs currently between the ages of 55 and 60. These doctors have so much to offer in terms of experience, teaching and mentoring but unless things change, we will simply lose them in very large numbers.

"We already know that from previous BMA surveys that two-thirds of doctors aged over 55 are planning to retire within 3 years. However, that was before the decision, taken last year, to freeze the value of the lifetime allowance until 2026. Following that decision the BMA surveyed its members again and a staggering 72% of doctors said they were now going to retire even earlier as a result. In addition, 61% said they would reduce the amount of work they did in order to mitigate these extra tax charges. Given the current pressures we have in the NHS, we can’t afford to lose any more staff," said Sharma.

Additional Tax is a Disincentive to Keep Working

"Doctors don’t have any issue with paying a fair, progressive rate of tax on their pensions. The problem is that their pension growth is directly linked to how much they earn, which in turn often depends on how much work they do. Both the annual allowance and lifetime allowance are designed to claw back tax relief on pension contributions, but the NHS pension scheme structure is already designed to adjust for tax relief, with higher earners paying significantly more per pound of pension than lower earners. Therefore, despite not benefitting from tax relief in the first place, doctors are still subjected to the annual and lifetime allowance. The impact of this is that if you breach these allowances by working more or retiring longer, the compounding additional charges on top of usual income tax means for many it can make financial sense to work less or retire early," Sharma explained.

There were major problems a few years ago with the tapered annual allowance and, despite the BMA warnings that unless things changed doctors would reduce the work they do, no action was taken and doctors reduced the work they did in very large numbers.

"The government belatedly acted and increased the earnings lift at which the tapering of the annual allowance kicked in. However, this was only a partial fix and we have been warning government that unless they fix this problem once and for all, they risk losing a large proportion of the medical workforce through early retirements in the next 18 months", warned Sharma.

The loss of experienced doctors is massively detrimental to clearing the NHS backlog caused by the pandemic. The NHS is facing unprecedented demand and a huge backlog of nearly six million patients waiting for hospital treatment.

A Possible Solution?

The BMA wants the Government to bring in an arrangement for doctors akin to a deal agreed for judges from April 2022. It wants to see a tax unregistered top-up scheme, where the employee doesn't get tax relief on pension contributions so pension savings aren't tested against the annual or lifetime allowance measures.

Sharma explains, "This would ensure that not only do doctors pay the correct rate of tax on their pension savings but crucially it could remove the artificial limits on how much work doctors could do for the NHS without facing punitively high rates of extra taxes. This would fundamentally be a fair solution for doctors, the NHS and the taxpayer ".

Doctors Feel Under-Valued

NHS pensions specialist from wealth management company Quilter, Graham Crossley told Medscape UK that it's a complex issue. He said he can understand doctors' frustration but it need not necessarily mean giving up work if they don't want to.

"If you start clobbering doctors with more tax year after year, you change the goalposts, like changing their retirement age, freezing lifetime allowance charges etc they are going to feel more and more under-appreciated and I understand why some are thinking, 'You know what, it would be an easier life if I just stopped working.'"

"We need doctors, we really do, and yet there seems to be a policy that bashes them, these are the people we want to keep working and care for our families and every single opportunity the Government has had to make things better they have kind of made things worse," he added.

He thinks a scheme like the one the Judges have been given is a solution.

"I like the BMA's tax unregistered scheme idea. It'll certainly add a level of complexity but as long as there's enough support it could actually work," explained Crossley.

Tax Bill Wagging the Dog

Crossley thinks there's still a great misunderstanding, rumour, and misinformation about the matter but it is an incredibly complex area to navigate.

"A lot of members might get to the top of the lifetime allowance and think 'ok, I've reached the top' and, therefore, the logical conclusion is to stop working. That can often be the case but depending on how the maths works, it can still be good value for money staying on," he adds.

"The way we would reframe it is not just look at the pension but to look at your whole financial plan. Ask 'What are you looking to achieve? What do you want in retirement?' And work backwards from there. A lot of the time it's the tax bill wagging the dog here and it shouldn't be. It should be more about goals for the doctor and what they want to do. There can be a good reason to stay in the pension scheme after 55 and keep on working. If doctors are thinking of retiring, it is essential they seek sensible, specialist advice," suggested Crossley.

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