The exodus of NHS consultants due to the tapered pension allowance
The NHS is currently facing a staffing crisis resulting in increasing rota gaps and a severe loss of workforce morale. The recent squeeze on tax breaks for consultants saving for their retirement is producing extremely bad outcomes for wider society in general, and the NHS in particular, that need to be urgently reviewed.
The tapered annual allowance, introduced in 2016, is aimed at clawing back billions of pounds in pensions tax relief handed each year to high earners. The tapered annual allowance sees the standard allowance whittled down from £40 000 to £10 000 for those with ‘adjusted’ yearly incomes of more than £150 000 and ‘threshold’ incomes of more than £110 000.
When the taper was announced it was described as ‘horrific’ and ‘nightmarish’ by pensions experts because of ‘fiendishly’ complex rules around when a reduction to the allowance is triggered.
The reasons for the introduction of the taper were sound enough. The lion’s share of the £25 billion or so annual net cost of pensions tax relief is racked up by higher and top-rate earners, who are in least need of help from the taxpayer to fund their pensions.
But far from hitting the private sector high-earners, who can take steps to swerve the taper, in reality it is wreaking havoc on key public sector workers, with large numbers of senior hospital doctors and GPs radically cutting their hours, or retiring early, to avoid landing in the taper zone. At a time when the NHS is already under severe pressure, these actions are having a direct impact on patient care.
The reason why the taper is having such a pernicious effect on the NHS is that, unlike the private sector, staff have few options to avert these tax bills, such as asking their employer to swap their pension for cash, or to reduce their pension contributions.
Doctors getting pay rises, promotions, or working extra shifts to help clear a patient backlog, are getting landed with shocking six-figure tax charges as high as £87 000 in some cases.
In a particularly egregious anomaly, senior doctors working overtime to help the NHS are facing marginal tax rates of as much as 100% on their overtime due to taper charges.
Further reform of pensions tax relief will not come without pushback, particularly in the public sector, but the Treasury cannot ignore the negative impact of the taper. It is bad medicine for us all and needs to be scrapped.
Do you agree? What are your thoughts and experiences? Do add your comments to this blog?