Solving pensions alone will not fix NHS issues, but it’s a start

But what point do we need to reach before the government wakes up and does something? 

Nowadays it is easy to blame Covid for delays and things going wrong in the NHS, but that excuse does not work here: the problem of doctors leaving the NHS existed long before the pandemic hit.

While there are several reasons as to why the NHS is understaffed, one of the main problems lies with complexities in the pension tax system and the NHS pension scheme.

A report published by the Health and Social Care Committee last week (July 25) looked into staffing issues, and found that sickness and an exhausted workforce were adding to the problem as well as a lack of flexible working and administrative barriers, making it hard to recruit international talent.

But strong words were used to describe the role pensions play in this mess with the committee saying it was a “national scandal” that senior doctors are being forced to reduce their working contribution to the NHS or to leave it entirely because of NHS pension arrangements. 

This is because doctors have been hit by ever-growing tax charges in recent years due to them exceeding their annual allowance, meaning it is often better off for them to reduce their pension, or leave it altogether to offset this.

While it is fair to say there is no one fix that will keep doctors and nurses in work, and solving the pension problem may only help the higher paid doctors rather than lower paid nurses, reducing the damage that pensions continue to make will certainly make a huge difference.

Some progress but not enough

The government has made some progress in this area by lifting the ‘adjusted income’ and ‘threshold income’ levels under the tapered annual allowance by £90,000, but other tax problems persist.

Many in the industry have said the taper is no longer to blame as by raising the threshold many doctors have been removed from its effects.

Therefore, despite multiple calls for it, scrapping the tapered annual allowance will not solve anything as it now only affects a small amount of very high paid doctors.

Instead, there are now issues with the annual allowance threshold, the frozen lifetime allowance and abatement rules that prevent retired nurses working additional hours.

Under normal circumstances, retired doctors or nurses returning to work could see their NHS pension reduced under the abatement process.

These rules were frozen during the Covid pandemic to allow more nurses to help the NHS. However, these rules are meant to come back into force at some point, meaning more nurses and doctors could see their pensions reduced if they do decide re-join the workforce to help the backlog of patients. 

Plus the annual allowance problems only really affect senior doctors on high salaries and therefore have a sizeable pensions. This is not as applicable to nurses who are on lower pay but are still leaving the NHS in their droves because it is less likely they will breach the £40,000 annual limit.

But things may be getting worse for the lower paid and their pensions after the Department of Health and Social Care proposed uplifts to NHS Pension Scheme member contribution tier thresholds from October 2022. 

Most thresholds have been increased by £1,400 (to reflect the pay rises), with the changes expected to lower contribution rates for 40 per cent of members. Contributions will, however, increase for members in the bottom three tiers of the scheme.

So lower paid staff, such as nurses, who fall into these bottom tiers will see the amount they have to contribute to their pensions increase along with the increase in cost of living – this could see more staff leave the scheme.

So what should happen?

The government should pay close attention to the pensions issue because if the staff shortages continue the country will be in a very sticky situation while we try to deal with the backlog of cases caused by the Covid pandemic.

Abatement should be scrapped so that recently retired NHS staff can easily return to work to help tackle the pandemic and backlog without suffering a penalty on their pension. 

There should also be changes made to the NHS Pension Scheme so that the annual allowances do not affect doctors in the way they are doing now.

Rising inflation causes issues for members of the NHS scheme because the consumer price index is used in calculations to work out annual growth. Therefore the soaring inflation has added to the risk of high earners in the scheme being hit with tax bills for breaching their allowance.

While a tax unregistered scheme may not be the best solution, an alternative scheme should be established to help alleviate these issues, and it is up to the government to figure out how this could work.

There is no one solution to the NHS crisis but trying to fix, or at least improve, the pension tax issues will make a huge impact. 

Unfortunately the doctors crisis shows us how tinkering with pension tax can have far-reaching consequences, so may this be a lesson to all.

Amy Austin is news editor at FTAdviser