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?

Comments (9) Add yours ↓
  1. Richard Morey Consultant Anaesthetist

    The pension taper fulfils the law of unintended consequences and of course punishes those who would hardly describe themselves as rich. Due to the complex calculations involved with a final salary pension scheme large amounts of tax become due following a fairly modest pay rise. This is of course only half the story as many doctors will also breech their lifetime allowance leading to further taxation. There are clever ways of mitigating tax due but depend on the skills and advice from financial advisors. Opting out of pension contributions is sensible but why stay in the NHS when moral and working conditions are so poor? I’m afraid I’m one of the many leaving!

    April 18, 2019 Reply
  2. Roger Kirby Professor of Urology

    In an attempt to circumvent the pension taper 10 NHS trusts are offering to give the employer’s pension contribution in cash rather than putting it into their retirement savings, an arrangement that is not usually possible under national NHS policy.

    This means doctors do not lose out on employer’s contributions, which are worth 20.6 per cent of the pensionable salary, when they opt out of the NHS pension scheme.

    York and Harrogate NHS trusts are among the organisations offering cash payments to senior doctors. The health department and NHS authorities are aware of the arrangements.

    “Our trust has an established scheme to support employees who wish to opt out of the pension scheme because of the lifetime allowance cap,” a spokesperson for the York Teaching Hospital NHS Foundation Trust stated.

    April 20, 2019 Reply
  3. Ian Pearce Professor

    This is a huge national issue with consequences that will be felt for a generation, if not more.
    As well as encouraging colleagues to reduce NHS hours to avoid excess taxation, it will signal an end to the ACCEA system used to reward those going above and beyond on an almost daily basis.
    Perhaps it is these and other consequences that are the intended sequelae of such ill thought out pension changes.
    It is interesting that the judiciary and the political establishment have managed to avoid such pension changes – is it beyond the medical profession to unite and enforce a reversal with compensation for the many who have opted out of the scheme as a result of such changes?

    April 20, 2019 Reply
  4. Christian Brown Urologist

    Many doctors, including myself, have little or no financial knowledge of such a complex taxation system and are now using many of the expert advisory services available. However, it’s clear the advice can vary and I have had conflicting opinion on which way to go with pension, PA reduction and private practice. The NHS is not an easy workplace at the moment and further financial barriers to staying will unfortunately cause many more to leave I’m sure.

    April 22, 2019 Reply
  5. Roger Kirby Professor of Urology

    Another great article by the @JosephineCumbo giving incisive commentary on the NHS pension crisis ft.com/content/8f9c5a… “Senior NHS doctors will reduce their hours on an “unprecedented scale”, “seriously impacting” patient care in the UK,

    April 26, 2019 Reply
  6. Roger Kirby Professor of Urology

    GPS are retiring early from the NHS as well as Consultants. Research conducted by the Health Foundation yesterday found increasing numbers of patients and fewer GPs to go around. There is one GP for every 2,160 patients in England – an increase of 8 per cent in three years. It is the first time since the 1960s that GP numbers have fallen for so long.
    However, the workforce has shrunk 50 per cent faster in the poorest regions – which often have the most complex patients as well. On average, a GP working in the most deprived boroughs is responsible for 370 more patients than those in the most affluent.

    May 9, 2019 Reply
  7. Roger Kirby Professor of Urology

    Ministers are planning a major shake-up of NHS pensions designed to stop an exodus of senior doctors retiring early because current tax rules mean they can end up working for free, especially if they take on extra duties.
    Philip Hammond, the chancellor, and Matt Hancock, the health and social care secretary, are studying plans which would end what NHS bosses and doctors’ leaders say is a “ludicrous” pensions tax trap that is exacerbating the health service’s already severe staff shortage.
    They are considering changing the NHS pensions scheme so that staff can make only half their usual pensions contributions for up to 10 years during their careers. It is known as a “50/50” pension because healthcare personnel pay only half the usual amounts for a set period, but then receive commensurately less money when they start drawing their pension in retirement.

    May 13, 2019 Reply
  8. Roger Kirby Professor of Urology

    There has been a ‘sharp rise’ in the number of GPs seeking pension advice, with some GPs facing personal bills of up to £50,000, a financial planning and investment firm has reported.

    Tilney said it had received nearly 50 consultants and GPs appointment requests via their website to meet with financial planners over the past month.

    This comes after Reports that that some doctors have had to invent ‘DIY’ work-arounds to avoid huge NHS pension tax bills, including using a ‘hokey cokey’ approach.

    Tilney chartered financial planner Gary Smith said the firm has seen a ‘sharp rise in the number GPs and consultants seeking specialist financial planning advice as a result of being impacted by more complex pension allowances’.

    May 15, 2019 Reply
  9. Roger Kirby Professor of Urology

    Concerns have previously been raised that recent changes to the pension tax regime were encouraging doctors to reduce the amount they worked. The annual allowance taper, introduced in 2016, restricts the amount of tax relief available to those with a threshold income over £110,000, reducing it from £40,000 to £10,000. This has led to some people incurring large tax bills on their pension contributions.

    However, the BMA has now produced guidance to show some consultants may also benefit from a larger pension if they reduce their hours. A case study included in guidance slides revealed a 40-year-old consultant working 12 programmed activities and using the scheme pays option would have a pension of £36,511 in today’s money at age 60.

    A graph in the guidance revealed if that consultant cut their PAs to eight, their pension would be around £42,500 in today’s money at age 60. A consultant who cut their PAs from 12 to seven would have a pension of around £42,000 at the age of 60.

    May 15, 2019 Reply

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