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 (11) 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
  5. Roger Kirby Professor of Urology

    An EXTREMELY worrying survey from @RCSnews


    68% surgeons considering early retirement due to pensions tax
    64% of consultant surgeons advised to work fewer hours
    69% of consultant surgeons have reduced the amount of time they have spent working in the NHS

    October 31, 2019 Reply
  6. Roger Kirby Professor of Urology

    Results from a survey by the Royal College of Physicians reveal that many doctors are choosing to retire earlier than planned, citing concerns over pension tax as one of the key factors in their decision.

    A survey of doctors by the Royal College of Physicians (RCP), the Royal College of Physicians of Edinburgh and the Royal College of Physicians and Surgeons of Glasgow has revealed that almost half (45%) have decided to retire at a younger age than previously planned, with 86% of them citing pension concerns as one of their reasons for this decision.

    The survey of 2,800 doctors nearing retiring age, showed that in the last 2 years, 38% of clinicians aged 50 to 65 report having had an annual pension allowance tax charge due to exceeding their pension threshold.

    As a consequence:

    62% of senior clinicians said that they avoided extra paid work (such as waiting list initiatives or covering for colleagues)
    25% have reduced the number of programmed activities they work
    22% have reported having stepped down from a leadership or other role with extra remuneration

    October 31, 2019 Reply
  7. Asif Muneer Consultant Urologist

    This is all very confusing and seeking professional advice helps but beware – some accountants can’t decipher this and it’s best to get a good pensions expert.
    It’s tragic that staff are either retiring early or cutting down sessions to avoid these tax bills. I don’t think the flexibility option is going to make much of a difference.

    November 5, 2019 Reply
  8. Roger Kirby Professor of Urology

    Ministers have been sent a dossier demonstrating how a shortage of staff caused by medics working fewer shifts to avoid the NHS pensions “tax trap” is affecting frontline care.

    The Academy of Medical Royal Colleges, which represents Britain’s 220,000 doctors, has written to the chancellor, Sajid Javid, and the health secretary, Matt Hancock, calling on them to urgently address the pensions tax issue that is causing many of the UK’s most senior doctors to reduce their overtime or leave the NHS altogether.

    The letter follows an audit of the Academy’s members that asked them to give real-life examples of the impact the tax changes are having on patient care because fewer doctors means even longer delays for patients needing both urgent and elective care.

    With the NHS short of 11,000 doctors already, many hospitals rely on senior doctors working overtime to plug rota gaps and reduce waiting lists.

    In Nottingham, consultant radiologists at the city’s NHS trust have halved from 1,200 to 600 the number of CT and MRI scans they read at home every month to help stop a backlog building up. This has forced Nottingham University Hospitals trust to outsource the work, which is costing them more money.

    November 6, 2019 Reply
  9. Roger Kirby Professor of Urology

    Senior doctors have rejected the government’s solution to the NHS pension crisis, amid growing problems for hospitals and GP surgeries as winter approaches.
    Only one in seven consultants and specialists plans to take advantage of flexible pension contributions that ministers hope will end the dispute, a survey shows. Doctors’ lack of interest in the plan is a blow to health secretary Matt Hancock and for prime minister Boris Johnson, who has pledged to find a solution.

    November 11, 2019 Reply
  10. Roger Kirby Professor of Urology

    At last Health secretary Matt Hancock has supported the proposals from NHS England to pay the pensions tax of GPs and consultants – but warned that details need to be clarified.
    Perhaps there is light at the end of the tunnel?

    November 22, 2019 Reply
  11. Roger Kirby Professor of Urology

    Recently it has emerged that the number of members leaving the NHS Pension Scheme was five times higher than that seen by other public pension funds, most likely because of the taper on the annual allowance.
    The government announced last month there will be an “urgent review” into the tapered annual allowance for pension tax relief and its effect on NHS staff.
    But this proposal has been criticised as “not urgent enough in a crisis”’ by Royal London director of policy and former pensions minister, Steve Webb.
    Sir Steve said the solution was to abolish the taper outright, even if this meant a lower across-the-board annual allowance for all.
    Vince Smith-Hughes, director of specialist business support at Prudential, said: “When the tapered annual allowance was first being planned no one made the immediate link to this impacting on the ability of the NHS to provide essential expert medical attention, but that’s exactly what’s happened.

    “A classic case of the law of unintended consequences. Given that this may also impact on other essential occupations, it feels like a review is long overdue.”
    In November, the government attempted to temporarily solve the taper issue by pledging to cover the tax bills of members of the NHS Pension Scheme who are in frontline clinical roles in England. But these measures only cover the 2019/20 financial year and currently only apply to clinicians.
    Some in the industry said that these proposals highlighted the urgency for pension taxation reform and scrapping the taper would be a better fix.
    James Jones-Tinsley, self-invested pensions technical specialist at Barnett Waddingham, said: “As the busier winter period beckoned, a ‘knee-jerk’ reaction by the government saw them offering to annul any excess tax bills incurred by NHS Clinicians during this tax year, in order to get them working overtime again.
    “Surely, the ‘proper’ answer to unintended consequences like these is to scrap the tapered annual allowance altogether.”

    January 3, 2020 Reply

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