Changes Coming To Fix NHS Pension ‘Crisis’

Aug 15, 2019 | Pension Planning, Video

Members of the NHS pension scheme e.g. Doctors and Dentists have been reporting huge unexpected tax bills as a result of pension rule changes in 2016.

This has resulted in real concern over patient care and an increase in waiting times for surgery.

Now Boris Johnson’s new government is taking action. But is it enough and will it eventually impact all of us?

Why we need to fix the NHS Pension ‘Crisis’

In 2016 the government had a clear objective. They wanted to increase money for the treasury by reducing the amount of tax relief given away when people made pension contributions.

This is when they introduced the Tapered Annual Allowance. The basic concept of the Tapered Annual Allowance is that you will be restricted in what you can pay into a pension the more you earn.

You can find out more about those most impacted by the Tapered Annual Allowance by clicking here.

The problem for Doctors and Dentists in particular is that they have no real control over how much is deemed to have been contributed to their NHS pension each year. This is just a feature of the way the NHS pension scheme works. As a result, at the end of the tax year they could find, due to their earnings level reducing their pension Annual Allowance, they have over contributed to a pension. This then leads to a tax charge of up to 45% on the excess contributed over their allowance.

The unintended consequence of these rule changes have resulted in Doctors in particular cutting back hours or retiring early to avoid the charges.

What is being done to fix the NHS pension ‘crisis’?

An original consultation was only published in July this year which proposed a 50:50 solution. This basically allowed Doctors to reduce their pension contributions by half, for half the future pension growth.

It didn’t sound very appealing to me, giving up half your pension contributions for half the benefit! This also doesn’t really help with incentivising Doctors to work, which is the key issue here.

No sooner had Boris Johnson settled into number 10 he announced he would “fix the NHS pensions allowance crisis.”

So scrap the previous proposal in July and we now have a new proposal. This time allowing Doctors complete flexibility in how much they reduce their pension contributions by. Also crucially allowing contributions that would have been made by their employer to be paid as additional salary. The aim is to launch these new proposals in the new financial year April 2020.

From my discussions with Doctors I don’t believe paying more tax has necessarily ever been the main issue. It is the complexity and lack of ability to plan that is more frustrating.

I’m not sure if this new proposal is still the ideal solution, as there could in theory be MORE complexity than there is now. In fact, the easiest thing for the government to do would be to scrap the Tapered Annual Allowance altogether.

The other key point here is what about the rest of us impacted by the Tapered Annual Allowance? Should pension rules be different for different job sectors?

Already other public sector unions are gearing up to fight for changes to their own pension schemes. So surely a change should be made for all. With a potential election coming soon who knows what giveaways Boris Johnson may have up his sleeves.

If you are a Doctor who is concerned about how the current NHS pension ‘crisis’ impacts on you and what you should be doing about it then please get in touch. We will be able to carry out a full review for you so you can understand where you stand and what you need to do. There is no cost for an initial consultation so you have nothing to lose from a chat.

Risk warning:

Stock market linked investments and any income from them, can fall as well as rise and is not guaranteed. Any figures quoted are for illustrative purposes and should not be taken as a forecast or guarantee. Past performance should not be seen as an indication of future returns and clients may get back less than they have invested.