Pensions  

Govt to fix NHS inflation link and mandate pensions recycling

Govt to fix NHS inflation link and mandate pensions recycling

The government will be correcting pension rules regarding inflation and will mandate NHS trusts to offer pension recycling by 2023, as part of its bid to prevent punitive pensions rules from encouraging workers to leave the National Health Service.

Health Secretary Thérèse Coffey set a range of measures that the government hopes will address key NHS challenges including patient backlogs. 

The waiting list for planned care currently stands at 7mn patients, a figure that Coffey claimed had been exacerbated by the coronavirus pandemic.

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The government is proposing changes to the NHS pension scheme in order to boost the health service’s capacity. “We know that people are leaving the workforce for a variety of reasons,” she said.

“For instance, currently pension rules can be a disincentive for clinicians who want to stay in the profession” she admitted, “or to return from retirement and help our national endeavour.”

“We will correct those pension rules relating to inflation,” Coffey continued. “We will expect NHS trusts to offer pension recycling, and we will extend, until 2024, measures that will allow people to stay or to return to the NHS.”

Former health secretary and current health and social care select committee chair Jeremy Hunt welcomed the government's planned pension rule changes from the backbenches. 

In August, Hunt called for “an immediate exemption for doctors to public sector pension rules which are currently forcing them to retire in their fifties in alarming numbers”.

Correcting inflation woes

The standard pensions annual allowance is £40,000. However, a taper lowers the annual tax-free allowance for pension contributions from £40,000 to as low as £4,000 for those NHS Pension Scheme members earning an “adjusted” income of more than £240,000 and a “threshold” income of more than £200,000. 

Those that surpass the limit, however, are slapped with tax bills, while members also face a lifetime allowance of £1mn.

The NHS Business Services Authority has struggled to cope with a surge in retirements, which in the three months to April 2022 were 50 per cent higher than in the same period over the previous five years, according to the Health Service Journal. 

NHS Digital statistics showed that there were 9,737 retirements in the three months to April 2022. The spike in retirements has caused a delay in pension payments.

In a statement, the Department for Health and Social Care announced the introduction of new retirement flexibilities which “will include a partial retirement option for staff to draw on their pension and continue building it while working more flexibly, allowing retired staff to build more pension if returning to service”.

The government also committed to “fix the unintended impacts of inflation, so senior clinicians aren’t taxed more than is necessary”.  

To achieve this, it will amend the revaluation date in the NHS Pension Scheme “to reduce the risk that NHS staff face annual allowance tax charges as a result of high inflation”.

In August, the Policy Exchange think tank called for a reassessment of the link between consumer price inflation and the annual allowance for public sector pensions.