DHSC could shelve pension flexibility plans if Treasury overhauls annual allowance

Plans to create the 'most flexible NHS pensions ever' could be shelved if the Treasury overhauls the tapered annual allowance, the government has revealed.

NHS pension crisis (Photo: SOPA images/Getty Images)
NHS pension crisis (Photo: SOPA images/Getty Images)

The DHSC has launched a consultation on plans to allow NHS pension scheme members to scale back their pension contributions and slow the growth of their pension pot, to reduce their chances of exceeding thresholds under the annual allowance mechanism that can trigger large tax penalties.

The consultation proposes further flexibilities that could allow doctors to top up pension contributions at the end of a financial year right up to the annual allowance limit, and to phase in over a period of years rises in pension contributions when their salary increases.

But the consultation makes clear that these flexibilities could all be ditched if the Treasury reforms the tax system.

Annual allowance

The document says: 'The chancellor has announced that the Treasury will review how the tapered annual allowance operates in order to support the delivery of public services. Should changes to the tax system be introduced the department may revisit the need for flexibility within the NHS Pension Scheme.'

GP leaders and accountants have warned that pension flexibilities alone are unlikely to solve the workforce crisis triggered by large numbers of GPs and hospital consultants reducing their working hours or refusing to take on extra shifts to avoid triggering tax on pensions that can leave them with sudden bills for tens of thousands of pounds.

The government's admission that it could shelve the flexibilities completely if changes to the annual allowance are implemented suggests that it is well aware that the tax regime, not changes to the pension scheme, are the real cause of the drain on the workforce.

Specialist medical accountant Andrew Pow, a partner at Mazars UK LLP and a board member at the Association of Specialist Medical Accountants (Aisma) said the flexibility proposals were 'a step forward but not the solution'.

Pension growth

He added that for GPs it was 'very difficult to predict' growth of their pension pots accurately - particularly given that many had been unable to obtain complete, up-to-date pension records from Primary Care Support England.

He added: 'The flexibility is more tailored to consultants with employment income. Even so it won’t get round the tapering issue and the scheme remains too complex. This needs significant simplification of the growth calculation to make it work.'

Despite the Treasury's pledge to consider tax reform, any overhaul of the tapered annual allowance mechanism would require legislation - and with a government lacking a majority in parliament, parliament prorogued, and the possibility of a general election later this year, it is far from clear when this could take place.

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