Govt rules out pension tax exemption for doctors

Govt rules out pension tax exemption for doctors

The government has ruled out creating a tax exemption for NHS scheme members, despite doctors reportedly turning down work for fear of being landed with tax bills linked to their pensions.

In a debate today (April 2) in Parliament, health minister Jackie Doyle-Price recognised that pension tax considerations were contributing to senior clinicians retiring early or reducing their NHS commitments but she said there still wasn't a case for tinkering with pension tax policies.

She said: "For those who wish to remain in the NHS pension scheme, the annual allowance provides a disincentive to take on additional work or responsibilities – I think that is very clear. The extra income increases the impact of the tapered annual allowance.

"[There is not] a case for exempting high earning NHS staff from a tax measure that is intended to apply to high earning individuals.

"And I don’t think that clinicians expect to be treated differently from other taxpayers."

Concern about doctors' pensions has increased significantly since the introduction of the tapered annual allowance in 2016.

This gradually reduces the allowance for those on high incomes, so for every £2 of income above £150,000 per annum, £1 of annual allowance will be lost.

This means high earners are more likely to suffer an annual tax charge on contributions and a lifetime allowance tax charge on their benefits.

It emerged in December that the number of members leaving the NHS Pension Scheme is five times higher than that recorded by other public pension funds.

Today's debate was secured by Paul Masterton, Conservative MP for East Renfrewshire, who said doctors were being penalised for taking on work that should not be pensionable, such as covering for colleagues.

He said: "Because their entire income is taken into account for the purposes of tapering, that threshold can be breached even by doing non-pensionable work, including covering for absent colleagues, extra programming activities or waiting lists initiatives.

"Many consultants are receiving unexpected five figure tax charges, and a number are now dropping extra work, turning down extra hours, or going part time to negate or avoid these penalties."

Mr Masterton said it was "ludicrous" that doctors are now in a situation "where the pension system is acting as a disincentive and effectively forcing consultants to choose between working for nothing and patient care".

Ms Doyle-Price said the introduction of the tapered annual allowance was a Conservative manifesto commitment in 2015, and that the impact of the change, including on the public sector, had been carefully considered at the time.

She added: "Like most public-sector pension schemes, the NHS doesn’t manage a fund of assets out of which pensions are paid, it is instead financed on a pay as you go basis, similar to state pension.

"Any change to scheme rules that provides flexibility could have a significant effect on the income for the overall scheme, and that would have an impact on the Exchequer.