Dr David Bailey interview: GPs must prepare for pension changes

Sweeping reforms will make 2014 a tough year for GPs looking at their pension, Dr David Bailey tells Nick Bostock.

'The changes to pensions are so massive,' says deputy BMA pensions committee chairman Dr David Bailey, 'that a lot of people over 50 will be looking at their options.'

Caerphilly, south Wales, GP Dr Bailey - chairman of GPC Wales until July this year - believes 2014 will prove to be a landmark year for GPs and their pensions.

'Almost everyone needs to take careful note of what is happening and I would be astonished if this doesn't have an impact on retention,' he says.

Allowances

From April, both the annual and the lifetime allowances for pension contributions will fall - a change that applies not just to the NHS Pension Scheme, but to everyone.

Final decisions on key changes that are specific to the NHS scheme are also likely to take shape by the middle of next year - reforms that could double the contributions expected from higher earners.

'I think the biggest issue affecting GPs - more than the contribution rates - is annual and lifetime allowances,' says Dr Bailey.

'GPs are going to find themselves with tax bills when the allowance drops. The annual allowance was £50,000 in 2013, 2012 and 2011. It will be £40,000 from 2014.'

GPs need to take professional advice this year on how to prepare for the new rules that take effect from April 2014, he says.

Changes to the lifetime allowance that kick in from that date will lower the amount people can save into their pensions from £1.5m to £1.25m, a move that could cause problems for older GPs or those who have bought added years.

'Any GPs over 50 or who have bought added years need to talk to an adviser about applying for fixed protection,' says Dr Bailey.

Applying for protection is something GPs should consider if their pension savings will exceed £1.25m when they take their benefits 'on or after 6 April 2014', according to Her Majesty's Revenue and Customs (HMRC).

Protection can 'reduce or mitigate' fees that savers face for exceeding this threshold and 'will allow you to crystallise benefits worth up to £1.5m without paying the lifetime allowance charge, although the ability to accrue future benefits is limited', advice on the HMRC website says.

'The alternative,' says Dr Bailey, 'is that the allowance drops to £1.25m, and for a lot of higher-earning GPs that will mean a higher tax bill. You need to take personal advice.'

Contributions

Debate over potential increases to GPs' pension contributions continues. Last November, BMA chairman Dr Mark Porter hailed an invitation from the DH to join other unions in talks on a 'fairer contribution structure' beyond 2015 as a milestone.

Employee contributions are likely to rise to 9.8% on average from 2015, but the government is still consulting on the 'tiering arrangements' to deliver this.

The BMA has previously argued against proposals that could see top-earning NHS Pension Scheme members contribute up to 14.5%, calling for a flatter contribution structure.

Dr Bailey says: 'No-one would argue we should be paying the same as people on the minimum wage. But when you are on a career average scheme, there is no mathematical justification for tiering - there is no reason for those on £100,000 paying more than those on £50,000.

'It is right that lower-paid workers pay less, but my personal opinion is that the contribution rate above the average national wage should be the same for everyone.'

Actuarial work on potential contribution rate models is being carried out on behalf of unions, including the BMA, but it remains to be seen if they can find common ground.

'Being battered over pensions for 10 years does not lead to a culture of optimism,' says Dr Bailey, admitting he is 'not enormously optimistic' that other health unions will agree higher earners should be protected from contributions as high as 14.5%.

But if the full changes go ahead, Dr Bailey warns that many GPs - one in 10 of whom are over 60 - will quit. 'A lot of people will have to look at whether they change their contributions and whether they should work less to limit their earnings - a lot of people will look at reducing hours to keep below the thresholds,' he says.

'But I would be astonished if it didn't have an impact on retention. If I am a partner, with the employer's contribution, I am paying 28% of income. It's still a reasonable deal if you are younger, but the age demographic of GPs is quite skewed.'

After stepping down as GPC Wales chairman, swapping roles with former deputy chairwoman Dr Charlotte Jones - who now leads GPC Wales - Dr Bailey is enjoying more time with his family this year. But given what 2014 has in store, the rest is likely to be short-lived.

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