New changes to doctors pensions

  • Describe the challenges posed by the tapered annual allowance for doctors
  • Describe how the new flexibility proposed could work
  • Identify the ways to go forward for NHS professionals
New changes to doctors pensions

When Boris Johnson made NHS pensions one of the first major issues he intended to tackle as prime minister, alongside Brexit, it was an indication of just how severe the crisis had become.

When the British Medical Association (BMA), the professional body, reported that thousands of GPs and hospital consultants have already reduced their working hours – with others planning to leave the profession altogether – as a direct result of punitive pension taxation, it was always going to set the alarm bells ringing in Whitehall.

Earlier this month, while announcing an extra £1.8bn for NHS frontline services, the prime minister simultaneously used the opportunity to reassure senior clinicians that he was committed to “fixing” the current situation by “changing the rules so that doctors no longer face a perverse incentive to reduce hours”.

What followed was the announcement that the existing consultation entitled "NHS Pension Scheme: proposed flexibility" launched by the Department for Health and Social Care in late July would be scrapped and that new immediate measures would be implemented.

The announcement was twofold.

Firstly, that a new consultation would be launched about giving clinicians complete flexibility to scale down their pension contributions or even opt to take their employer contributions as salary, and secondly, guidance would be given to help those affected to immediately opt out of the NHS Pension Scheme in this financial year.

Central to the government’s announcement was the Health and Social Care Secretary’s claims that “these comprehensive proposals will give doctors the pension flexibilities they have called for and need to make sure they are rewarded for extra work”.

But why is greater flexibility needed and what are the potential repercussions for the GPs and consultants who are affected?

The new consultation

Concerns about senior medics' pensions have been growing since the introduction of the tapered annual allowance in 2016.

This gradually reduces the annual allowance for senior doctors with an adjusted income of more than £150,000 and includes the value of pension savings such as the value of the growth in the NHS Pension.

This means that top consultants and GPs are more likely to suffer higher annual tax charges on contributions as well as a greater lifetime allowance tax charge on their benefits.

At the moment, the lifetime allowance for total pension savings is £1,055,000 for tax purposes.

But it is important to note that the annual allowance also has an impact for those earning an income of £110,000.

The £110,000 limit, known as threshold income, is gross salary minus pension contributions.

The £110,000 limit determines if the tapered annual allowance applies to an individual and if the answer is ‘yes’, the £150,000 limit determines the size of the reduction.

Consequently, the tapered annual allowance calculation includes non-pensionable pay, including pay for additional sessions above full-time hours worked by many consultants.