Chief Secretary to the Treasury Liz Truss was asked by Conservative MP Andrew Selous to make a statement on the implications for patients of the taxation of NHS pensions.
Some senior NHS staff have begun refusing to work beyond their planned hours after receiving unexpected tax bills, following new pension rules introduced in 2016. The government gives tax relief on contributions to pension schemes, and allows up to 25 per cent of the benefits to be taken tax-free at retirement. Since 2006, there have been limits on the amount that can be contributed each year and the total benefit that can be built up over a career. If the growth in a doctor's pension scheme exceeds this annual allowance they face a charge, or a reduction in their pension benefits. The limit on the annual allowance has come down from £255,000 a year in 2010-11, to £40,000 a year for those earning broadly less than £110,000 in 2018-19. In addition, a tapered annual allowance was introduced in 2016 for higher earners. This means that the annual allowance is reduced by £1 for every £2 earned, says the British Medical Association (BMA).
In her statement the Chief Secretary explained that the Health Secretary is discussing this matter with senior representatives of the BMA. She said it is not possible for the tax rules applying to senior clinicians in the NHS to be different from those that apply everywhere else. She said a proposed 50:50 scheme will give senior clinicians in England and Wales more choice in respect of their pension accrual, and will thus control tax charges. She added that since last autumn, all members of the NHS scheme on the taper have been able to elect for the pension scheme to pay any tax charges now, and so avoid any impacts on take-home pay, in return for an actuarially fair reduction in their pensions.
The proposal known as a 50:50 option would allow clinicians to halve their pension contributions in exchange for halving the rate of pension growth.
Andrew Selous explained that very few doctors have earnings that exceed the adjusted income threshold of £150,000 but due to the inclusion of hypothetical pension growth as income, doctors are being affected by tapering. This means that all full-time consultants who are a member of more than one NHS pension scheme will be affected by the tapered annual allowance and will need to reconsider how much work they do for the NHS to mitigate these tax charges, he said. The MP went on to say the 50:50 pensions accrual option proposed does not remove the unintended consequences that are forcing doctors to reduce the work they do.
Craig Mackinlay said extra earnings would take many of these people into the slice above £100,000 to £125,000, where a 62 per cent tax charge applies: “This is not just an NHS problem. My concern is that we are putting a brake on those entrepreneurs who want to create enterprise, jobs and the tax payments of the future. A simple step would be to get rid of the lifetime allowance.” Truss replied that we need a simpler tax system that has the right incentives throughout. John Redwood also raised this issue.
Jeremy Lefroy suggested it would be simpler and fairer to restrict pension relief to the basic rate and scrap all annual and lifetime allowances. The minister found this idea ‘interesting’. Philip Hollobone said this problem has been coming down the track for at least three years and nothing has been done to stop it; he complained about a silo mentality between the Treasury and the Department of Health and Social Care. Truss agreed with Paul Sweeney’s request for her to write not only to NHS England but to her counterpart in Scotland to ensure that this issue is effectively understood and the evidence is collated from all parts of the NHS in the UK.
Unless this issue is dealt with, there is a risk that the approach of the end of the financial year will lead to even greater levels of working to rule after the summer, said Shadow Treasury Minister Anneliese Dodds (Labour). Many consultants are only now becoming aware of their liabilities. Many of those affected have not even received pension statements in a timely manner, due to delays by Capita, she claimed. Ben Bradshaw (also Labour) said a local hospital in Exeter made it clear the 50:50 contribution proposal will not solve this problem because the problem is the taper.
Philippa Whitford, SNP spokesperson on health, said the issue on the tapering of the annual allowance, which is reduced by £1 for every extra £2 earned, was raised in 2017. She said it makes no sense for all income including non-pensionable income to be included. The minister agreed to send Peter Grant (also SNP) information on any past assessment of the impact of the changes on the health service.
Lib Dem Spokesperson on Work and Pensions Christine Jardine was concerned that the minister kept saying this is a matter for the NHS when the problem has been created by the Treasury. Independent MP Sarah Wollaston, Chair of the Health and Social Care Committee, wants the Government to look at the delays facing doctors trying to get an update on their situation. Truss said she would raise the matter with the Health Secretary. Jim Shannon, DUP health spokesperson, urged a rethink to ensure that those whom the public need to work overtime and go the extra mile are not ‘horrifically penalised’ for doing so.
The full session can be found here.