Unveiling his final Budget before the May general election, chancellor George Osborne announced that the lifetime allowance – the maximum amount of pension savings that benefits from tax relief over a person’s lifetime – would be slashed from £1.25m to £1m from April 2016.
Dr David Bailey, GP and deputy chairman of the BMA pensions committee, warned that the decision would affect the majority of GP pensions, as the £250,000 cut sits where the pension value of the average full-time GP is likely to fall, throwing the majority open to heftier charges in the future.
‘It’s the sweet spot, really, between £1m and £1.25m – it takes in an awful lot of doctors,’ he said.
‘It will affect a lot of GPs because it means the lifetime allowance is going to be breached by the majority, as opposed to the minority at £1.25m. So there's going to be a real issue about whether people take fixed protection.’
The change comes just a year after the lifetime allowance was slashed from £1.5m to £1.25m.
Stuart Williamson, partner at specialist medical accounting firm Williamson West, agreed that the cuts would mean ‘many more’ GP pensions will go over the lifetime allowance.
‘Once it’s implemented, you're now looking at just under £43,500 of pension giving you a lifetime allowance pot of £1m,’ he said.
‘At the moment the GP pot doesn’t go beyond £1.25m if you have a pension of £54,000. So it means a lot of GPs – many more – will go over the lifetime allowance in their career.
'Part-timers are a different kettle of fish, but any full-time GP is going to go over their lifetime allowance and therefore have a charge on their pension in retirement.’
Presuming a GP had a pot of £1.25m, and did not have protection, the charges could amount to over £50,000, he said, which would be paid over a 20-year period from when they start receiving their pension, averaging at around £135 a month net.
The payout cuts could persuade many to opt for private pension schemes instead, he said.
The changes will not be implemented for another year, and the BMA should be putting out some guidance for how GPs should manage the transitional arrangements soon, Dr Bailey said.
In the meantime, he advised that GPs coming close to retirement ‘should have a conversation with their pension providers’ to see how it changes their individual position.