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Doctors reject ad hoc solution to annual pension contribution limits

Monday, 5 August, 2019

Prime Minister Boris Johnson has offered to change the National Health Service's (NHS’) pension scheme rules so that senior doctors will be able to avoid 'whopping unexpected tax bills' resulting from HMRC’s limits on annual contribution allowances.

The issue has arisen because some high-earning clinicians have built up very substantial contributions through the NHS' generous pension scheme. This has brought them into conflict with rules introduced in April 2016, which reduce the usual GBP40,000 annual pension contribution allowance by 50 pence for every pound earned above an annual income of GBP150,000. Those making contributions above the allowed amount have to pay an annual charge of up to 45 per cent.

Originally, the government refused the British Medical Association’s (BMA’s) request to exempt NHS employees from the rules, with the result that consultant clinicians at some NHS trusts cut down their overtime working hours to limit their incomes. The BMA’s figures suggest that 42 per cent of GPs and 30 per cent of consultants now avoid overtime work, and between 2016 and 2018more than 3,500 doctors took early retirement.

In June this year, the Department of Health changed its position, offering clinicians the choice of paying contributions at half the current 14.5 per cent rate, and receiving half the amount of their pension in return. This offer was repeated by new Prime Minister Boris Johnson at the weekend.

'It is clear that something has gone badly wrong in the taxation of doctors' pensions', said Johnson. 'So... we are changing the rules so that doctors no longer face a perverse incentive to reduce hours.’

However, the BMA, which represents doctors' interests, has now rejected the offer, insisting on a general reform of the contributions cap rules.

'The real solution must be in overhauling the damaging tax legislation that leaves senior doctors facing significant and unexpected tax bills', it said. It urged Johnson to 'give patients reassurance that senior hospital doctors and GPs will be able to continue to provide care, and not be forced out by absurd taxes on their pensions that mean all too often they are paying to go to work.'

'While flexibilities may help in the short term, what is needed is a drastic overhaul of pension tax regulations, including the damaging annual allowance and tapered annual allowance', the BMA added.

Sources