Hammond looking to make NHS scheme more flexible

Hammond looking to make NHS scheme more flexible

The Chancellor of the Exchequer has said he is looking to bring more flexibility into the NHS Pension Scheme to avoid “highly paid consultants deciding to retire early or cut down their hours”.

In a Treasury committee hearing on Wednesday (April 24), Philip Hammond revealed he was in discussions with the health secretary to find a solution for members of the NHS pension scheme affected by the tapered annual allowance.

But he noted that the government would have to look at the cost to the public purse of introducing such flexibility, and that it couldn't treat “NHS staff differently from everybody else”.

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.

Mr Hammond suggested that a doctor who’s facing tapered annual allowance charges “will often be able to arrange with the private sector employer to change their remuneration package, so they receive more pay and less pension contribution”.

He also reiterated that the current pension tax reliefs “are extraordinarily generous and are among the most expensive elements of tax relief in the system”.

Mr Hammond said: “They’re also heavily skewed to the better off in society.

“So this is a legacy relief system, but it would be quite difficult to make a case for putting more relief in to overcome an anomaly, because it is already extraordinarily generous and particularly generous for those in the highest incomes.”

FTAdviser reported today (April 26) that NHS pension scheme members affected by the tapered annual allowance could get a higher pension if they work part-time, the British Medical Association has warned.

Mr Hammond also explained the importance of the current allowance system, introduced by George Osborne.

He said: “My predecessor, during a period of significant fiscal consolidation, was clear that his intention was to ensure that those on the highest income bore more of a burden than those on lower incomes. It is surprisingly difficult to find ways in the tax system to which you can give effect to that.

“One of the effective ways that he found was to introduce the annual allowance and the lifetime allowance charge. They had a significant and beneficial effect on insuring an equitable distribution of the burden of fiscal consolidation.

“I know that people who are paying it don’t like paying it, but they are paying it as part of a deliberate strategy to distribute the burden of fiscal consolidation fairly.”