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.
Claire Trott, head of pensions strategy at St. James’s Place, said offering cash in lieu of pension accrual was common practice in the private sector.
However, she alerted to the fact that the additional pay from the employer and the saving on the personal contributions will be subject to income tax and national insurance contributions.
She said: "So although they may be saving on pensions tax, they will see an increase in their income tax.
"I suspect the increase won’t be to the same level of the reduction in annual allowance charge and the tax will be payable through Paye meaning no surprises at the end of the tax year."
Commenting on the launch of the consultation, Health and Social Care secretary Matt Hancock said that the government wants “to make it easier for our hardworking senior doctors to balance their workload, their pension pot and their tax bill - with more flexibility, more choice, and less need to pay upfront”.
But Mike Lacey, partner at financial adviser Bowman Pension Consulting, said the government solution was “naïve at best”.
He said: “It’s a pay cut, given pensions have long been defined as deferred pay. Why would anyone agree to that?
"There are solutions to the issue of the annual allowance charges, but they would require the Treasury to change the rules – and that is supposedly off the table.
“Amendments such as changing the benefit accrual multiple for annual allowance purposes from 20 to say, 16, would reduce the tax charge.
"Increasing the annual allowance and the lifetime allowance would do the same, as would an extension to the period carry forward can be used – adding a year or two would allow affected staff to utilise previously unused annual allowance.”
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