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."
The pensions tax system has been adversely affecting doctors for a while now and although the Budget 2020 lifted the ‘adjusted income’ and ‘threshold income’ levels under the tapered annual allowance by £90,000 for the 2020/21 tax year, there is still a legacy of annual allowance issues for many doctors.
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 rules have forced senior clinicians and other high earning public sector workers to either leave their pension scheme, cut down on their working hours or retire early to avoid punitive tax bills.
Doctors who have taken on extra shifts due to the pandemic are at risk of being hit with large tax bills because of continuing issues with this charge.
Hall warned: “Despite the government offering to compensate registered clinicians for annual allowance charges relating to the 2019/20 tax year, many people still don’t know about it, which suggests communications have failed and/or the message was too complex to translate.
“I also believe that there is a general distrust of government policy which has been exacerbated by the closure of legacy schemes, unlawful discrimination (McCloud judgement) and successive reductions in lifetime allowance.”
Data from Quilter last month (May 24) found that doctors are turning to scheme pays to help them foot the bill.
In 2018/19 13,548 members exceeded the annual allowance, with 5,115 (38 per cent) electing for scheme pays to help them pay the bill.
This compared with 22,428 breaching the allowance in 2011/12, but only 776 (3.5 per cent) turning to scheme pays for help.
Scheme pays allows savers to settle annual allowance tax charges through their pension scheme without needing to find cash upfront.
amy.austin@ft.com
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