Will flexible NHS pensions end the tax misery for consultants?

Back in spring, a parliamentary review refused to listen to industry-wide calls to ‘scrap the taper’ – referring to the harsh pension savings limit known as the tapered annual allowance. However, the subsequent crisis in the NHS workforce (as consultants reduced their hours or retired early to avoid substantial tax bills) could not be ignored.

First, a consultation into a 50:50 flexible NHS pension was launched and then promptly stopped two weeks later by the new Prime Minister, Boris Johnson. He replaced it with proposals to allow doctors increased control to scale down pension contributions or take their employer contributions as salary – just as you thought pensions could not get any more complicated.

In summary, the proposed changes mean that consultants would be able to:

–              Choose their desired pension accrual level (before 1 April each year) and pay the corresponding contributions. This will be in 10% increments; for example, 30% accrual with 30% contributions.

–              Review their pension growth towards the end of the scheme year when their likely total earnings for the period are more accurate. They could then adjust their accrual / contribution level accordingly.

If a lower accrual level is chosen, employers could opt to pay the scheme member any unused contributions as a lump sum at the end of the year – but this is entirely at the employer’s discretion.

For consultants facing increasingly punitive tax positions, these changes will come as a small relief. Nonetheless, should these plans go ahead (the consultation is due to end on 1 November, 2019), they will undoubtedly add significant layers of extra complexity to the already fiendishly complicated tax calculations.

As a starting point for any consultant concerned by pension tax, we would recommend requesting your annual allowance pensions savings statement, which is now ready to obtain from the NHS Pensions Agency. You can then use this as a basis for discussions with your financial planner to ascertain your current position and the likely tax implications going forward.

Please make the request for your statement as soon as possible – do not wait for it to be automatically sent to you – as recipients can be missed, lengthy delays can occur and we have known many of the statements to contain substantial computer-generated errors so a thorough ‘sense-check’ is required.

If you are confused about the tapered annual allowance, the new pension proposals or your finances in general, please seek help without delay. Feel free to use this blog comments section as an area to express your experiences with pensions. 

Comments (4) Add yours ↓
  1. Christian Brown Urologist

    If anyone else is as confused as I am / was then I suggest you ask for help. Some clinicians (myself included) go to work and focus on patient care, with the finances around their department, practice, trust and often personal life just happening without too much thought or interference. Unfortunately the pension situation is not like that. I recommend using one of the several medical finance groups who for a reasonable and fair fee will take if off your hands, speak a language you can understand, and help avoid a horror story of needing to pay a huge amount of money at short notice, you didn’t know you owed.

    October 7, 2019 Reply
  2. Michael Dinneen Consultant urologist

    As a senior consultant I am aware of many colleagues caught up in this trap including my wife. We know many who despite their energy and enthusiasm for work have felt compelled to make a premature retirement decision. Anything that helps to avoid big tax bills is to be welcomed but it does seem to be very cumbersome, why can’t a system be devised that automatically stops accepting contributions once the cap is reached. It would seem sensible to pay the employer contribution to the employee as an incentive to keep working and halt the significant loss of senior colleagues and the associated loss of corporate intelligence. This should be a national policy without any regional variations.

    October 7, 2019 Reply
  3. Mark Martin Chairman, Cavendish Medical

    The latest ‘twist’ to this saga is that the compulsory transfer of doctors to the 2015 scheme appears illegal and needs to be unwound. The judges have recently won a similar case regarding their pension arrangements and the Government have been refused the right to appeal. The 2015 scheme has a much later retirement age but perversely creates a consistently higher annual increase in scheme value and hence a higher annual tax charge.
    Watch this space! In the meantime, scheme pays may prove to be a better option rather than paying any tax charge personally.

    October 13, 2019 Reply
  4. Jeremy Noble Urologist

    I would strongly encourage all colleagues to seek expert advice even if they do not think that the annual allowance pension inflexibility applies to them. NHS Trusts should try and recognise that a significant number of their senior consultant doctors are likely to be effected by these taxes and look at ways to support them until such time that the rules are changed.
    In the meantime I fear that Trusts who rely on consultants to do extra work to meet waiting list targets may well struggle until these complex issues have been addressed.

    October 14, 2019 Reply

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