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.
It has therefore brought increasing numbers of high earners in the NHS within the scope of pension tax.
The BMA warned that the annual allowance cap created an incentive for senior GPs and consultants to either reduce the hours they worked for the NHS or quit the NHS altogether.
It even highlighted the fact that even GPs in their 30s were being advised by accountants to reduce their working hours to avoid the tax charges.
And these are the issues that the government hopes this consultation will tackle head-on.
The Health and Social Care Secretary stated: "NHS doctors do extraordinary, life-saving work every day, and they should not have to worry about the tax impacts if they choose to go the extra mile by taking on additional work to help patients."
The new consultation is due to be launched this summer and alongside the plans for full pension contribution flexibility it will also review the tapered annual allowance. Stakeholders including the BMA are expected to be brought into the discussions about the proposals.
How the flexible contribution option would work
At the heart of the new consultation is the Department for Health and Social Care's proposal to introduce flexible pension contributions.
The increased flexibility replaces the 50:50 proposal previously consulted on.
It would allow senior NHS practitioners to adjust their regular pension contributions in exchange for changing the rate of pension growth.
The Department of Health and Social Care said this would mean someone could choose to make 30 per cent contributions for a 30 per cent accrual rate, “or any other percentage in 10 per cent increments depending on their financial situation”.
If applied, the change would mean that a typical NHS pension pot would build more gradually over a consultant’s or GP’s working life and could mean savers avoid tax charges from exceeding their annual allowance.
This is the amount that senior clinicians can save into their pension tax free each year, which is currently set at £40,000.
Consequently, the proposals apply expressly to anyone who has, or is likely to contribute, more than £40,000 to their pension pot in a year, and/or those who have an adjusted income of more than £150,000.
