Tax  

Govt to pay doctors' tax bills in emergency measure

Govt to pay doctors' tax bills in emergency measure

Doctors and consultants in England will have their pension tax bills covered by the government in an attempt to fix the crisis engulfing the NHS scheme.

According to several media reports, the department for Health and Social Care will announce that tax bills incurred by senior physicians this year will be covered by the NHS Pension Scheme under the scheme pays process until a permanent fix is found.

Scheme pays allows savers to settle annual allowance tax charges of more than £2,000 through the pension fund without needing to find funds upfront. Instead, their benefits are adjusted at retirement and will pay interest.

The government will make good on any reduced pension before the doctors reach retirement, the reports stated.

The measure will only apply to the 2019/20 tax year.

It is hoped the intervention will cause GPs and consultants who have been turning down additional work for fear of large tax bills to go back to taking on extra duties.

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.

FTAdviser reported in August that HM Treasury will be reviewing the impact of the tapered annual allowance, after doctors were campaigning to scrap it.

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.

Pension experts have already criticised the latest proposal.

Sir Steve Webb, director of policy at Royal London and former pensions minister, said the plan “amounts to a bizarre money-go-round with one part of the public sector paying money to another in order to resolve a short-term crisis”.

He said: “The fundamental problem here is the complex system of pension tax relief. The failure of the government to address this issue has resulted in emergency measures having to be taken in the middle of an election campaign simply to avoid a winter crisis in the NHS. 

“The Treasury could have avoided all of these problems if it had simply admitted months ago that the pension tax relief system is too complex and had abolished the tapered annual allowance altogether.”

For Jon Greer, head of retirement policy at Quilter, this would be a radical move for the government.

He said: “It is an effective admission that the pension annual allowance taper is a broken policy that is too unpredictable and punitive, however it has taken the country to be on the cusp of a winter crisis in the NHS during an election for the government to address it.