Pensions  

Doctor's pension tax problem seems unsolvable

James Coney

James Coney

How do you solve the mess of the taxation of doctor’s pensions?

Whatever your personal view about the pension entitlement of doctors, the simple fact of the matter is the taxation of their pensions is causing behavioural changes that are damaging to the health of the NHS.

If you have a doctor choosing not to do extra and much needed shifts because they do not want to get taxed more then you have a real problem that affects us all.

For what it is worth, Liz Truss has said she will "sort out" the situation. I will believe that when I see it.

A bit like her promises to cut green levies on energy bills, some things are easier to say than they are to do – you cannot just axe green levies as there is a contractual obligation to private sector businesses, and no good free-market Tory wants to be seen to rip up these.

So what can be done? The government has already raised the restricted annual allowance, handing not just help to doctors but also to investment bankers and company bosses. 

The British Medical Association has long been demanding urgent reforms to tackle the staff retention crisis, arguing that the existing tax regime penalises those who might otherwise consider delaying retirement.

It has called for the introduction of late retirement factors into the 1995 scheme, for amendments to the Finance Act, and for the creation of a tax-unregistered scheme so that the NHS scheme would work like the Judges' Pensions Scheme.

Is any of this really feasible though? Handing tax breaks to a few thousand members of the judiciary is one thing; doling them out to one of the world’s biggest employers would be too much for the Treasury to stomach.

Someone needs to start again with a rational head and consider what the real problems are here, be it the annual and lifetime allowance thresholds, or, perhaps, the generosity of the NHS pension scheme for a small percentage of high earners.

I have always been a believer that the annual allowance works well for DC schemes but poorly for DB schemes and vice versa for the lifetime allowance. Having an annual allowance only for DC, and a lifetime allowance only for DB would be practically impossible to administer though. You could not just scrap both either because you do need some kind of cap.

If the problem is high pay and NHS scheme generosity then a simpler solution would be to implement a system similar to the University Superannuation Scheme which has DB benefits capped at a certain level and then DC contributions made above this.