Members of the NHS pension scheme affected by the tapered annual allowance could get a higher pension if they work part-time, the British Medical Association has warned.
Union officials have written once again to the Chancellor of the Exchequer urging HM Treasury to meet with them to find a solution for the problem.
The BMA - which represents 125,000 hospital consultants and family doctors – has warned Philip Hammond that doctors will reduce their NHS working hours "unless there is tangible reform to the NHS pension scheme".
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, meaning they are more likely to suffer an annual tax charge on contributions and a lifetime allowance tax charge on their benefits.
The tapered annual allowance means that for every £2 of income above £150,000 a year, £1 of annual allowance will be lost.
It emerged in December that the number of members leaving the NHS Pension Scheme was five times higher than that seen by other public pension funds.
In the letter, seen by FTAdviser, the BMA officials noted that to avoid the annual allowance charges, “consultants must limit their income, and in most cases, this means stopping doing regular overtime in the form of additional programmed activities”.
They also stressed that as a result of these charges, it may also make financial sense for consultants to consider working part-time.
This is because most consultants cannot afford to pay these bills from their net take-home pay, since they are such substantial sums, and have no choice but to pay these tax bills from their pension using the ‘scheme pays’ option – which allows them to pay tax on any annual allowance breaches through their pension.
“Consequently, as a result of paying this tax and the interest rate charged on this loan, they may paradoxically receive a significantly higher pension by working part-time once the scheme pays loan is deducted,” the BMA stated.
Dr Rob Harwood, chairman of the BMA consultant committee, said that unless action was taken, the only option for consultants is to reduce the amount of time they work for the NHS, which will be detrimental to “patients and to the country’s health service – exactly what the BMA has been trying to avoid".
He added: “The BMA has always sought constructive dialogue with the Government and NHS employers, and has taken every opportunity of making clear the grave threat faced by the health service to those who have both the power and responsibility to effect change.
“The government’s window of opportunity is closing fast, and we urge the Chancellor a final time to make reform of pensions taxation an immediate priority.
“Action is needed now, before doctors are compelled, by these punitive rules, to reduce their working hours or quit the health service. Doctors are facing the very real prospect of effectively working for no pay and that is untenable.”
In the letter to the Chancellor, the BMA also revealed it has been working with a developer of an NHS pension modelling tool which allows consultants in England to ascertain their tax liabilities in relation to the annual allowance and lifetime allowance, and to estimate the future value of their pension from their own unique circumstances.
The union stated that it had "little choice” but to publish information to its members warning them of the serious impact of the allowances, and to make the pension modelling tool available following the start of the next financial year.
Ian Browne, pensions expert at Quilter, said most schemes and employers have the flexibility to opt out and use other tax advantages savings vehicles once the pension is maxed out, which allows them to “plan their affairs properly with the help of an adviser”.
But in the case of the NHS scheme, reducing contributions isn’t possible, “so employees are locked in to a tax charge unless they stop accruing money, which means stopping working,” he explained.
He added: “That cannot be the right outcome for anyone, least of all the staff and patients of the NHS. When a complex area of savings taxation is impacting on vital front line services, something has gone badly wrong.
“Hopefully it will raise awareness of the backwards steps that have been made in savings tax reforms in recent years and force a rounded discussion about how this impacts on behaviours. For too long government have focussed only on cutting the cost of tax incentives, rather than the effect this has on our working lives and savings patterns.”
maria.espadinha@ft.com
