Pensions  

NHS pension reform still avoids the main problem

Steve Webb

Steve Webb

When the tapered annual allowance for pension tax relief was first introduced, many advisers rightly criticised this absurdly complex addition to an already complex system. 

But the Treasury dismissed these complaints as ‘special pleading’, knowing that the wider public was unlikely to sympathise with those with take-home pay was over £110,000 per year. 

What the Treasury apparently failed to foresee was what is now happening the NHS. 

When NHS hospitals are cancelling operations because doctors are refusing extra shifts for fear of breaching tax relief limits, the absurdity of the system really starts to hit home.

When the government finally admitted that something had to be done, they came up with a minimalist solution. 

This was to allow senior members of the NHS Pension scheme to opt for 50 per cent pension accrual in return for 50% contributions.

This proposal was immediately dismissed by doctors. 

While a 50-50 option might be right for some, what if the right answer was 20-20 or 80-80? 

Second, it was effectively a pay cut.  Those who opted for 50-50 would simply lose half the value of the substantial contributions which their employer currently pays into the NHS Pension Scheme.

 And third, it was a fix to the ‘wrong’ bit of the system. No matter how much you tweak the NHS Pension Scheme, the underlying problem remains the tapered annual allowance.

A change of prime minister and chancellor has changed things. 

This week, the government announced that it was ditching the consultation on ’50-50’ in favour of a much more comprehensive package of changes which has three main components.

First, at the start of the next financial year, doctors will be able to opt for any percentage of the standard contribution rate (in multiples of 10 per cent) between zero and 100 per cent.

 Any employer contribution that they have relinquished can be paid to them as cash.

Those who opt for a low contribution rate at the start of the year will be allowed to buy ‘additional pension’ to mop up unused annual allowance at the end of the year.

Second, with almost immediate effect, doctors will be able to opt out and receive a cash alternative, subject to the agreement of their local employer. 

This proposal is a recognition of the urgency of the situation and the desire to avoid a ‘winter crisis’ in the NHS this year.

Third, the Treasury has promised a review of the way in which the taper ‘..affects the delivery of public services’. 

This qualifier is rather strange as it is hard to imagine that the tapered annual allowance would be reformed only for members of public service pension schemes. 

But it is probably a desperate attempt to signal that this is not part of a wider reform of pension tax relief.