Pension Flexibility Plan to Help Fix NHS Staffing 'Crisis'

Peter Russell

September 11, 2019

Ministers published a consultation on changes to pension rules to try and stop senior NHS clinicians declining to work extra hours because they were worried about incurring huge tax liabilities.

Under the proposals, senior doctors and nurses could be allowed flexibility to set their own pension contribution levels.

Changes to pension taxation over the past decade have led to a situation where higher earners in the NHS can see their pension growing to a level beyond their tax-free allowance.

The changes have meant the annual tax-free allowance of £40,000 could be reduced via a 'taper' applying to high earners with taxable income from any source which exceeded £150,000. The taper effectively meant that for every £2 that adjusted income exceeded £150,000, a scheme member lost £1 from their annual allowance.

For very high earners, the taper could squeeze the annual allowance to just £10,000.

Scheme members were also subject to a lifetime allowance of £1.02 million, which included all pension benefits accrued from the NHS scheme and other pensions, but did not include the state pension.

Clinicians Turning Down Extra Work

The situation has led to a situation where NHS employers found that consultants were increasingly no longer willing to work additional sessions to reduce waiting lists, fill rota gaps, or take on additional supervisory responsibilities. The lost capacity was keenly felt in clinical specialties where there were already shortages.

A recent survey by the British Medical Association (BMA) found that 30% of hospital consultants, and 42% of GPs, had already reduced their hours because of potential tax liabilities.

Launching the consultation, Matt Hancock, Secretary of State for Health and Social Care, said: "Thanks to the proposals we're setting out today, GPs and other senior clinicians are going to have the freedom to control how much their pension pot grows, making sure they can maximise the amount that they save.

"And this means they'll be able to carry out the life-saving work that they do to keep patients safe, and to work more without being penalised.

"It will all make sure that senior clinicians have more control over their pension and their retirement than at any other point in NHS history.

"It's a decisive step in fixing this issue for good."

Proposed Pension Contribution Flexibility

The proposed changes to the pension scheme would allow higher earning clinicians to choose before the start of each scheme year a personal accrual level and pay correspondingly lower employee contributions. This accrual level could be a percentage of the normal scheme accrual level in 10% increments. For example, 50% accrual with 50% contributions, or 30%:30%, or 70%:70%.

It would also allow clinicians to fine tune their pension growth towards the end of the scheme year by updating their chosen accrual level when they had a better understanding of their earnings during the year.

In cases where clinicians lower the accrual level later in the year, the employer could also pay lower contributions. The Department of Health and Social Care said it would be up to individual employers to decide whether to recycle unused employer contributions into salary.

The DHSC said it would also consult on how to smooth out spikes in pension growth caused by substantial increases in pensionable pay.

'Scrap the Taper': Unions

The proposals met with a mixed response from unions.

Dr Phil De Warren-Penny, BMA consultants committee deputy co-chair, said: "To succeed we need to see NHS employers doing their part and recycling all of the employer contributions. If they don't, it’s still an effective pay cut for doctors for doing extra shifts.

"The real heart of the problem is the tapered annual allowance which must be removed along with the annual allowance and lifetime allowance. Only when these are removed can doctors return to working extra shifts to help remove waiting list backlogs and support colleagues where there are rota gaps, without fear of receiving huge tax bills."

Dr John West from the Hospital Consultants and Specialists Association said: "The danger is that while some doctors will use the additional wiggle room to juggle their finances, and reduce the value of their pension in the process, it will also add yet another layer of complexity to our eye-wateringly complicated pension tax system.

"The government is essentially gambling with patient care. These proposals will be certain to fuel a bonanza for financial advisers but it is less clear whether they will help address the current unravelling of care. There is a strong likelihood that doctors will take the simpler route of ensuring their pay stays below the tax thresholds that trigger huge tax bills.

"The litmus test will be whether doctors will actually be encouraged to work overtime to cover care gaps across the country. The simple solution is to scrap the taper and reform allowances – and that means action by the Chancellor, not the NHS."

Consultation on the proposals runs until 1st November 2019.

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