TaxJun 5 2019

NHS pension proposal is only 'beginning'

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NHS pension proposal is only 'beginning'
ByMaria Espadinha

The proposal of a partial pension which would allow doctors to halve the rate at which their pension builds up is just the "beginning" in the search for a solution to the tax issues they face, the chairwoman of NHS Improvement has said.

Baroness Harding of Winscombe, who chairs the overseeing body of NHS trusts, told the Health and Social Care committee in Parliament yesterday (June 4) that it is important the government listens carefully to all the stakeholders in its upcoming consultation to make sure it finds a genuine solution to the issues.

She said: "We need to have something that prevents the disincentives but it is also fair to taxpayers and fair to other professions whose pensions have been capped.

"We also need to recognise we need to get this done quickly, we need to run a consultation and get real concrete changes going into the next tax year."

Health and Social Care secretary Matt Hancock announced on Monday (May 3) that the government plans to consult on proposals to offer senior clinicians a new pensions option, which will allow them to build their NHS pension more gradually over their career without facing large tax charges.

Plans to introduce a 50:50 option would allow clinicians to "halve their pension contributions in exchange for halving the rate of pension growth", the Cabinet Office and department of Health and Social Care stated.

Under current rules there is no flexibility on the rate at which a pension builds up, with the highest earning consultants contributing 14.5 per cent of their pensionable pay per month.

This means that many doctors have exceeded their pension savings allowances and faced huge tax bills.

And the consequences are already being felt. 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.

But according to the British Medical Association the 50:50 proposal won’t remove the incentive for doctors to reduce their working hours, and wider reform is needed.

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.

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