NHS trusts have started to develop alternative schemes so that doctors can avoid punitive tax bills on their pensions.
Trade association NHS Providers polled 93 trusts and found a quarter (23 per cent) have been looking for new ways to work around the tax issues, in particular the annual allowance.
Some entities have implemented a contribution recycling scheme, which allows the trust to pay affected staff the equivalent of their employer pension contribution (14.3 per cent) as additional salary.
This may be paid in one or more equal instalments, or monthly as salary top ups, or as additional allowances but is only available to staff who have chosen to opt out of the NHS Pension Scheme.
The second option was to convert a higher proportion of an employee’s salary into non-pensionable pay or another type of reward.
These arrangements might include splitting roles into two separate assignments, potentially with two contracts of employment, so that one of these roles is non-pensionable; offering non-pensionable bonuses or responsibility allowances, or offering a salary sacrifice scheme which converts a proportion of salary into a range of non-pay related benefits.
Finally, trusts have introduced deferred additional leave, where staff is awarded additional leave or a sabbatical/career break at an agreed time, instead of pensionable salary above their core contracted pay.
The remainder of the trusts surveyed by NHS Providers were either considering a range of options (32 per cent) or have decided not to pursue any form of alternative scheme at this time.
According to NHS Providers the three approaches outlined were the most common ones but others have also been considered.
For example, a handful of trusts explored the option to pay consultants through a limited liability partnership to give staff more flexibility in managing their pension savings.
However, the trade association pointed to potential compliance issues around IR35 tax rules.
The IR35 rule was introduced in 2000 by the then chancellor Gordon Brown in an attempt to stop ‘disguised employment’ and prevent contractors working through their own limited company to avoid tax, when in reality, their working arrangement reflected employment.
The changes were introduced to the public sector in 2018 and will come into force for private companies in 2020.
NHS trusts are exploring alternative options because more and more doctors are leaving the pension scheme or cutting their hours to avoid large tax bills.
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, most likely because of the taper on the annual allowance.
Introduced in 2016, the tapered annual allowance 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 taper means that for every £2 of adjusted income above £150,000 a year, £1 of annual allowance will be lost.