NHS doctors could be given cash in lieu of pension

NHS doctors could be given cash in lieu of pension

The government will not stop NHS employers from offering cash in lieu of pension accrual as a way to prevent high tax bills, it has said.

In its consultation on new pension options for NHS clinicians published yesterday (July 22), the department for Health and Social Care stated some NHS trusts were considering offering affected staff an increased salary if they opt out of the pension scheme.

The government said while the current public sector reward policy was not to offer additional pay in lieu of pension contributions, the Department for Health and Social Care recognised that "NHS employers are independent of government and can take these decisions".

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It added: "However, employers should consider the fairness and value for money of such an approach in the context of their whole workforce."

David Robbins, senior consultant at Willis Towers Watson, said the government appeared to be "giving a discreet nod to NHS trusts and telling them that they can offer cash in lieu of pension accrual, if this is what it takes to get doctors to fill their vacant shifts".

He added: "NHS chief executives who see their hospitals cancelling operations might well take note."

But he believed there was little appetite at the Treasury for such a solution.

He said: "The exchequer gets some extra tax and national insurance, but that is not enough to offset the lost employer and employee contributions."

He added: "The imperative for NHS managers and for ministers must be to find ways to ameliorate the very high marginal tax rates that the tapered annual allowance creates, so that senior clinicians are not incentivised to cut back their hours.

"If changes to the tax system aren’t going to happen quickly, if at all, cash alternatives to pensions could sometimes help."

In its consultation the government proposed a new pensions option for the NHS scheme, which will allow clinicians the freedom to choose a pensions contribution other than 50 per cent – for example 25 or 75 per cent - and allow them to top up their pensions later in the tax year to maximise any remaining headroom in their annual allowance.

But the British Medical Association has already criticised the proposals, as it considers a 50:50 approach to be “a substantial pay cut for GPs and hospital doctors”.

Dr Rob Harwood, chair of the BMA consultants committee, said: “We wanted a consultation that included realistic options to bring an end to this ridiculous, but serious, crisis we are now facing.

“The BMA believes the only real solution is to scrap the annual or tapering allowances with immediate effect.”

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 adjusted income above £150,000 a year, £1 of annual allowance will be lost.