For the first time in half a century the number of general practitioners is on a decline, with financial planning firm Tilney blaming this on the complex tax rules governing their pensions.
Tilney said that constant reform to pension allowances to limit the cost of pension tax relief to HM Treasury had played a role in causing two thirds of GPs to retire early, twice the level seen five years ago.
Government figures from July 2018 showed that the number of GPs who had taken early retirement had risen from 33 per cent to 62 per cent of all retirements since 2011/12.
The NHS has also seen a 1 per cent fall in GP numbers in the UK since 2016 and a continuous fall since 2014, according to analysis by Nuffield Trust published yesterday (May 7).
Tilney blamed predominantly the tapered annual allowance and cuts to the lifetime allowance for the trend.
Introduced in April 2016 by then Chancellor George Osborne, the tapered annual allowance means that for every £2 of income over £150,000 the amount of pension tax relief is reduced by £1, down to a minimum of £10,000.
As most senior medical professionals earn a high wage, they are subject to this complicated tax rule and if they exceed this allowance they can incur hefty tax charges.
The cut to the lifetime allowance also affects those with higher value pensions as money taken out which exceeds the limit can be subject to a 55 per cent tax charge.
Gary Smith, chartered financial planner at Tilney, said: "We have seen a sharp rise in both the number of GPs and consultants seeking specialist financial planning advice as a result of being impacted by more complex pension allowances which can land them with punitive tax charges and this is causing considerable anxiety.
"The issues and circumstances for GPs and consultants differ but ultimately stem from two changes to the pension allowances.
"First, and foremost, was the introduction of the tapered annual pensions allowance on 6 April 2016 and secondly, successive, sharp reductions in the lifetime allowance from £1.8m in 2011/12 to a current level of £1.055m."
Mr Smith said the allowances and tax charges were especially complicated for DB pension scheme members where benefits are linked to final salary levels rather than contributions into a pension investment fund.
He said: "We find many of our senior medical professional clients utterly confused by this complexity.
"In my experience advising many senior medical professionals, they are typically very committed to the NHS and passionate about their work and most would prefer not to retire early or have to weigh up their working hours against tax implications, but the absurd economics of the current pension allowances is driving them to this."
Tilney, which compared the financial positions of a part-time and full-time GP, found that after tax and pension charges the part-time GP was not paid much less than the full-time doctor.
It compared a GP, aged 58, working full-time with a pre-tax income of £160,000, to a GP of the same age who has taken early retirement and is drawing an NHS Pension income of £50,000 and working 2.5 days a week earning £75,000.
The analysis found that after income tax, national insurance and pension tax charges were taken into account, the part-time GP's annual take-home income was a mere £338 lower than the full-time GP's, despite working half the hours.
In January, Matthew Hancock, secretary of state for Health and Social Care, admitted that tax charges on pensions were "the biggest concern I have raised with me by GPs" and said he was in talks with HM Treasury to change the lifetime allowance on pensions for GPs to help address retention problems in the sector.
Last month (April 2019), the British Medical Association alerted members of the NHS pension scheme affected by the tapered allowance that they could get a higher pension if they worked part-time. They also wrote to chancellor Philip Hammond urging HM Treasury to meet with them to find a solution for the problem.
The BMA consultants committee warned that to avoid annual allowance tax charges "consultants must limit their income, and in most cases, this means stopping doing regular overtime in the form of additional programmed activities".
It also proposed a policy which would allow doctors to recycle their employer’s pension contributions and called for a UK-wide scheme for NHS staff to retain or purchase death-in-service benefits.
amy.austin@ft.com
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