Advice firm Wesleyan has criticised the government’s proposals to solve doctors’ tax issues saying they do not offer a viable long-term solution to the problems created by the tapered annual allowance.
A consultation on the rules of the NHS Pension Scheme was published in September, which included a proposal to allow members to choose a personalised pension growth level at the start of each tax year, a step further from the 50:50 split the government had initially proposed in July.
In its response to the department of Health and Social Care’s consultation Wesleyan claimed the proposals “may exacerbate existing difficulties by adding further layers of complexity to an already over-convoluted tax” and said the only practical solution was to abolish the tapered 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.
Doctors have campaigned to scrap this tax which caused many to leave the NHS Pension Scheme or cut their hours in order to avoid hefty tax bills.
Wesleyan said the tax should be scrapped as even qualified accountants and senior tax advisers struggled to understand the complex rules and to perform the necessary calculations.
The adviser also claimed by keeping the taper the administration costs for the NHS would continue to rise as extra resources will be needed to cater for the increases in administration, including record keeping, producing pension savings statements, explanatory factsheets, modelling tools etc.
It would also cost doctors as many are having to seek tax advice to navigate the taper.
Their reluctance to take on extra work because of the taper is in turn leading to longer NHS waiting lists and likely to impact on patient care, Wesleyan warned.
One of the questions in the consultation was who pension flexibility should be available to and whether it should just be offered to those who would be affected by the taper.
Wesleyan said the proposed flexibility should not be restricted to one particular group as this could be seen as unfair or discriminatory treatment.
Wesleyan said: “If the new flexibility is limited to high earners, then lower earners could claim that it is unfair for high earners to have flexibility over their personal contribution rates, when such flexibility isn’t available to members on lower pay scales.
“However, if on the other hand the solution was not restricted, then all NHS staff would have the ability to reduce their contributions and benefits."
The firm added: "Inevitably, this would result in some NHS staff on modest earnings signing up for a reduced accrual rate to keep their personal contributions within their monthly budget.
“This would result in poorer retirement outcomes for such individuals, and the extra administration inevitably created would prove a costly and time-consuming burden on the NHS Scheme administrators.”
It also said the flexibilities should not just be for NHS staff as the tapered annual allowance also affects firefighters, civil service, police and armed services.
The government had asked whether its proposals for a more tailored approach to pension accrual was flexible enough for doctors to balance their income, pension and tax liability.
But Wesleyan said the proposals might not work as senior doctors will not have the time or resources to calculate their ideal accrual rate.
This would need to be both high enough so that it preserves their pension rights, while low enough to not attract a tapered annual allowance tax charge, it pointed out.
Wesleyan said: “Although the proposed flexibility offers a partial solution, unfortunately we do not see it resolving all the difficulties created by the tapered annual allowance.
“The ideal accrual rate, even if it could be broadly estimated at the start of a year, would need to be subject to constant review throughout the year, and changed if necessary before the year-end.
“Clinicians are busy people and few will bother to go to these lengths. Many will opt for the simple solution and refuse to do extra shifts for fear of exceeding the allowances, rather than pay expensive fees to an accountant or tax adviser to undertake the convoluted tax calculations.”
This week (November 4), trade body NHS Providers wrote to prime minister Boris Johnson to reiterate the issue of the tapered annual allowance for doctors and to ask for an immediate resolution as due to many doctors retiring or leaving the profession the NHS would find it hard to manage patient demand during the winter.
The letter stated: “The current proposals outlining new flexibilities for senior clinicians from April 2020 do not provide a resolution for all staff or a resolution to the timescale needed for the NHS to do all it can to safely manage demand this winter.”
The body also argued it would be unfair to not allow flexibility for all staff on the NHS.
NHS Providers stated: “There is also a risk in taking forward these proposals without providing similar flexibilities for lower paid staff.
“We agree wholeheartedly on the need for an urgent solution for senior doctors, who should not be financially penalised for working the hours they wish, but implementing changes without proving any form of similar flexibility for lower paid staff, who can struggle to afford high contribution rates, has the potential to cause unhelpful division and disquiet across the NHS.”
amy.austin@ft.com
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