More than 50,000 workers opted out of the NHS pension scheme in the 2019/20 tax year over concerns they would be hit with a significant tax bill.
A Freedom of Information request by Quilter showed the number of people leaving the scheme rose by 22 per cent last year, hitting 50,399 in 2019/20, up from 41,219 the year before.
Over the past four tax years 44,843 NHS staff on average opted out of the pension scheme per year totalling close to 180,000 staff.
But Quilter said many later rejoin the scheme to try and reduce pension growth for the year to avoid being hit by annual allowance tax charges.
Graham Crossley, NHS pension specialist at Quilter, said the government must look at the current pension tax system for the public sector and see whether it is still fit for purpose.
Crossley said: “The NHS has played a huge role in helping the country keep going during the pandemic and its worrying and sad to see that in last tax year significantly more people in the health service felt that leaving the NHS pension scheme was their best option due to a complex tax system that penalises the right behaviours.
“Opting out of the scheme may not be the best course of action and can have a serious impact on someone’s pension provision, as well as their family’s financial protection, so is therefore not a decision to be taken lightly and it is worth first seeking professional financial advice.”
Similarly, Parminder Gill, advice policy consultant at the Wesleyan Group, said: “Alongside the ongoing issues around the tapered annual allowance, we’ve heard indications of a rise in lower paid staff, including many nurses, opting out of the NHS pension scheme for affordability issues, which might also go some way to explaining the year-on-year increase in opt-outs.
“This itself is highly concerning – it’s a shameful situation where individuals who have worked tirelessly on the frontline throughout the coronavirus pandemic feel they cannot spare money to save for their retirement."
But he too noted that some members choose to opt back into the NHSPS once they’ve left.
"Recently we’ve seen a rise in this behaviour following the decisions on McCloud remediation measures – members want to make sure that they can receive the benefits that they might be owed."
Rachael Hall, independent financial adviser and NHS pension specialist at Sandringham Medical, said she speaks to people every day who have left the scheme to try and escape tax charges.
Hall said: “This could be avoided if people had access to better IT systems and educational resources that can easily illustrate the value of the benefits lost by opting out and gained by opting back in.
“For example, if negative DC accounts were digitised and the cumulative effect of scheme pays was displayed on total rewards statements, members may be encouraged to remain in the scheme and not resort to such drastic measures."