Number of doctors breaching annual allowance grows by 68%

Number of doctors breaching annual allowance grows by 68%

The number of doctors exceeding the pension annual allowance in 2021-22 has increased by almost 70 per cent compared to the previous tax year.

A freedom of information request submitted by financial advice firm Wesleyan, and first reported by the Telegraph, showed 55,765 doctors have exceeded their annual allowance but this is expected to increase further as practitioners submit their 2021-22 income figures to the NHS Pension Scheme.

Of the 55,765, the vast majority (53,061) are classed as officers, who are mainly hospital doctors, which have seen the number of annual allowance breaches increase by 90 per cent.

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Madeleine Dowling, technical manager at Wesleyan, said: “The NHS pension scheme is linked to CPI. Because inflation has been so high, and the annual allowance limit hasn’t been increased by a proportional amount, it’s pushed more doctors over their limit, and means the risk of doctors having to pay additional tax has also increased.”

The annual allowance is currently £40,000 for most people but higher earners also have to consider the tapered annual allowance, which limits the amount of tax relief they can claim on their pension savings by slashing their annual allowance to as low as £4,000 in some cases.

Jonathan Halberda, specialist financial adviser at Wesleyan, said doctors were facing large tax bills by trying to help hospitals while they are under pressure.

“This is a situation where they’re being effectively punished for their dedication,” Halberda said.

“Ultimately, it means experienced doctors may feel they have no choice but to limit or reduce the hours they work to minimise the risk of being hit with a punitive tax bill; feel they have to opt out of their pension; or even retire altogether.

“This is a complex issue that has been causing doctors confusion and costing them money for too long now, prematurely pushing some of the NHS’ best people away from the profession and the patients they serve so well.”

Tax bills affecting doctors

The NHS pension issue has been rumbling on for some time with doctors choosing early retirement, or turning down promotions and extra hours so their salary does not push them above the allowance.

This comes at a time when the country is already facing shortages of doctors, with NHS England urging senior doctors to delay their retirement to help tackle the Covid-fuelled backlog of patients. 

The government 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.

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