Pensions cap costs £10,000 a year

GPs who delayed retirement will lose out under the pension cap on dynamising factors. Nick Bostock reports

Dr Eric Rose
Dr Eric Rose

GPs who worked beyond the age of 60 to benefit from higher pay under the new GMS contract will lose £10,000 a year from pensions because of a cap imposed by the DoH, accountants say.

They will also lose three times this amount from the lump sum owed to them on retirement.

A GPC legal challenge is expected, but as things stand some GPs fear they may not live long enough to benefit from having remained in work.

Under the new GMS contract GP pensions are dynamised, or uplifted, annually by an amount equal to average profit growth in general practice.

The combined dynamisation factor due over the first three years of the contract — 2003/4 to 2005/6 — is estimated at 48 per cent, but could be higher.

However, health minister Lord Warner told the GPC last month that the DoH was imposing a change to the deal.

Perverse incentive

The 48 per cent dynamisation would be spread over five years to 2007/8. He said this was to avoid a step change to lower dynamisation factors in the following years and because NHS organisations may not have been able to afford it without diverting cash from services for patients.

Dynamisation was also spread to remove a ‘perverse incentive for significant numbers of GPs to retire simultaneously once the years of major increase end’.

However, this DoH statement came several months after many GPs retired in April 2006 having worked beyond the standard retirement age of 60 to benefit from incentives they believed were in their contracts.

GPs who retired in 2006 will not benefit from dynamisation deferred to 2006/7 and 2007/8.

GPs who have not yet reached retirement age will also lose out, but less heavily.

Specialist medical accountant Laurence Slavin, a partner at Ramsay Brown and Partners, said GPs who could have quit at the age of 60 in 2004 after 35 years of service would have received pensions worth £35,400 a year (see illustration).

Staying on until 2006 meant their pensions would have grown to about £53,000 a year if the contract promise had been honoured. But under the imposed pension deal they will receive just £42,875 a year.

In addition, the lump sum pay-ment owed to them, which is equivalent to three times the annual pension, faces the same type of reduction. This means a once-off additional loss of just over £30,000.

Mr Slavin estimates that GPs retiring in 2007/8 will lose about £5,500 a year from their pensions and almost £17,000 from their lump sums.

A central GPC or BMA legal challenge is likely to be followed by individual cases brought by GPs adversely affected by the pension changes.

GPC member, Dr Eric Rose, has put himself forward as a test case. He told GP: ‘I was 60 two years ago. I could have drawn my pension then. But I thought if I did two more years I would have benefited from the extra dynamisation.’

However, because of the reduced benefits now being imposed by the DoH, he said it could take GPs like him nearly 20 years to see a profit from working.

He estimated that GPs who delayed retirement for two years did so at a cost of more than £100,000 on average. This is based on two years of unclaimed pension plus two years of superannuation contributions. Practice profits are currently worth about £100,000 on average per partner, Dr Rose pointed out, from which GPs pay 6 per cent employee superannuation and 14 per cent employers superannuation out of their share, roughly £20,000 a year in total.

Unclaimed pension payments would be worth over £30,000 a year, bringing a total over £100,000. Dr Rose said some GPs will have gained as little as £5,000 a year from working two more years.

‘On this basis people could have to claim for 20 years to break even,’ he said.

BMA pensions chairman Dr Andrew Dearden predicted GPs retiring in 2006 would lose around £6,000 a year on their pensions.

He said pensions would still receive just under 30 per cent dynamisation over the first three years of new GMS.

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