The government has faced pressure to fix the relationship between tax and NHS pensions, with former health secretary Thérèse Coffey pledging in September to correct rules that she admitted “can be a disincentive for clinicians who want to stay in the profession or return from retirement and help our national endeavour”.
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 are hit with tax bills, while members also face a lifetime allowance of £1mn.
It is disingenuous of the government to suggest that this will make any meaningful difference to the huge backlogs in care we are seeingDr Vishal Sharma, British Medical AssociationAnnounced on December 5, the Department of Health and Social Care will run a consultation for eight weeks, with reforms expected to be implemented in late spring 2023.
“We need a system where our most experienced clinicians don’t feel they have to reduce their workload or take early retirement because of financial worries,” health and social secretary Steve Barclay said.
“I also want to make it easier for staff that want to return to work to support the NHS to be able to do so without penalties.”
The British Medical Association suggested that the partial retirement proposal, and an attempt at providing greater flexibility for recently retired doctors, would have some potential benefits, but added that the reforms “fall well short of the long-term solution that the NHS desperately needs”.
“These proposed changes appear to be too little, too late,” BMA pensions committee chair Dr Vishal Sharma said.
Maximum drawdown rises from 80% to 100% of benefits
A recent BMA survey revealed that more than 40 per cent of consultants plan to leave the NHS over the next 12 months.
The government has acknowledged that the McCloud remedy may mean that some staff aged 55 and above are able to retire earlier than previously envisaged, which could impact on NHS capacity. A lack of partial retirement in the 1995 section of the scheme may deter staff from remaining in the workforce for longer than if there were more flexible options available to them, it said.
Under the government’s partial retirement proposal, NHS staff will be allowed to either claim all or a portion of their pension but continue to work and build more pension benefits.
It is proposing an amendment to the 1995 section regulations, to allow members to partially retire and claim up to 100 per cent of their 1995 section benefits while continuing to work and accrue more pension in the 2015 scheme.
Under this plan, on reaching the minimum pension age – which is currently 55 – members will become eligible to partially retire if they lower their pensionable pay by at least 10 per cent.
For GPs, a 10 per cent decrease in commitment would be required. Members with a protected minimum pension age of 50 would be able to partially retire from the age of 50.
Under the 2008 and 2015 scheme regulations, members may only claim a maximum of 80 per cent of their benefits. Under the new proposals, members who partially retire would be able to draw down up to 100 per cent of their 1995 section benefits as part of partial retirement.
The rules would be amended to allow for maximum drawdown of 100 per cent – up from 80 per cent – for the 2008 and 2015 sections.
‘Doctors will still have to consider reducing the work they do’
The government will also lift limits on the hours that recently retired staff can work, which currently act as a barrier for those who want to return to the NHS.
Retired staff will also be allowed to rejoin the scheme, while staff working in primary care networks, such as GPs and general practice staff, will be able to access the scheme. Previously, these workers have had to apply for time-limited access on an ad-hoc basis.
The government committed to “fixing the interaction between the pensions tax system and inflation to ensure senior clinicians have more headroom against the £40,000 pension tax annual allowance”.
“This means senior doctors are either less likely to receive a tax charge, or will receive a smaller tax charge, reducing the likelihood of early retirement,” it continued.
The government intends for the pension input amount – which is the growth in pension savings during a tax year – to only consider growth in pension savings above inflation. The opening value would be uplifted by the consumer price index from the previous September when calculating this amount.
The date that the annual in-service revaluation is applied to 2015 scheme-earned pension would be moved from April 1 to April 6 from next year, which would align the CPI used for determining the pension input amount – meaning that the calculation will only consider above-inflation pension savings growth.
Sharma added: “The partial retirement option and greater flexibility for recently retired doctors returning to the workforce have potential benefits, and in particular will standardise retire and return arrangements.
“However, this does not directly address the issues caused by the annual or lifetime allowance.
“These are not just issues for doctors nearing retirement, but they are also increasingly influencing the decisions of mid-career consultants and GPs, for whom partial retirement would not be an option,” he continued.
“These doctors will still have to consider reducing the work they do to prevent incurring large punitive tax bills, and it is disingenuous of the government to suggest that this will make any meaningful difference to the huge backlogs in care we are seeing.”
Royal London senior pensions development manager Justin Corliss said: “The measures proposed [on December 5] appear to address the most pressing issues facing NHS staff and potential rejoiners.
“They are not, however a panacea for clinicians’ pension ailments where dissatisfaction is likely to continue as long as doctors face pension tax charges.
“Against this backdrop, we’d caution whether remaining in the pension scheme will continue to be in many doctors’ best interests.”
alex.janiaud@ft.com
