A number of NHS employers are offering doctors cash in lieu of pension contributions to tackle their growing tax bills caused by restrictive pension rules.
Many doctors are impacted by the tapered annual allowance which 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.
This rule means that for every £2 of adjusted income above £150,000 a year, £1 of annual allowance will be lost.
Due to this many doctors earning above £110,000 are reducing their hours as they can land a significant tax bill for earning just one penny over the allowance, while others are choosing to opt out of the NHS Pension Scheme.
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.
An investigation by the British Medical Journal, published yesterday (August 21), found that as at July 2019 at least 16 trusts had either set up or were considering some form of salary flexibility to tackle the issue.
These trusts offered affected staff an increased salary in lieu of opting out of the pension scheme.
According to the BMJ, Northumbria Healthcare Foundation trust, University Hospitals Coventry and Warwickshire trust, and the North Cumbria University Hospitals trust were among those offering staff this option.
Other trusts have organised information sessions on issues around pensions taxation and enlisted the help of independent financial advisers to speak to staff.
In the meantime the government has launched a consultation to help solve the issue.
In its consultation published on July 22, the department for Health and Social Care stated that it will not stop NHS employers from offering cash in lieu of pension accrual as a way to prevent high tax bills.
As part of the 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 in an update in August it stated it would review the tapered annual allowance for doctors.
Doctors union the British Medical Association criticised the 50:50 proposals, as it considers the approach to be “a substantial pay cut for GPs and hospital doctors”.
Dr Rob Harwood, chair of the BMA consultants committee, said at the time: “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.”
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