The government announced this week that it would consult on greater pension flexibility, which would allow clinicians to set their level of pension contribution and accrual at the start of the year at any percentage in 10% increments. The changes would come into effect from April 2020.
However, finance experts have warned that the measures will increase complexities around pensions and were unlikely to have the desired effect of ensuring GPs weren't hit by punitive tax charges that are forcing them to cut sessions. They said reform of the tapered annual allowance was necessary if the government was serious about addressing the problem.
The Treasury announced yesterday that it intended to review how the tapered annual allowance worked for public sector staff, but it is unclear when the outcome of the review will be known.
> Understanding tax and your pension
Accountants have warned that many GPs may not even benefit from the contribution flexibilities proposed by the government because most do not know how much they are going to earn in any given year. This will make it difficult for them to determine in advance whether they should reduce their pension contribution and by how much.
GPs could therefore remain at risk of running up hefty tax bills if they leave their contributions too high, or missing out on the full benefits of their NHS pension if they set their contributions too low.
Accountant Andrew Pow, a partner at Mazars UK LLP and board member of the Association of Independent Specialist Medical Accountants (Aisma), told GPonline that 'diabolical' delays in processing pension information by Primary Care Support England would compound the problem.
Because the NHS pension is a defined benefit scheme, rather than a defined contribution scheme as with most private pensions, the annual allowance tax rules are applied to the increase in an individual's pension benefits, not the amount paid into the scheme. So in order to make a decision about reducing their contributions GPs will need to know how much their pension will accrue during the year.
'It is really difficult for GPs to work out their pension growth,' Mr Pow explained. 'To make a decision about contributions you will need to know what you have accrued to date and what your earnings are. But we have clients with pension records that have not been updated from 2015/16 onwards and, given GPs don't necessarily know how much they will earn in any given year, it makes it very difficult.'
Mr Pow said that the changes would inevitably make pension and financial planning more complex for GPs. 'Even from a financial adviser's viewpoint it is very difficult for us to say definitively "that works" because there are so many unknowns in the calculations. But it will be almost impossible for a GP to accurately predict their pension growth at the start of the year.'
Experts have also raised concerns about how the proposals will impact on GPs' final pensions. Ian Macvie, pension and retirement technical manager at Wesleyan, a firm that provides financial advice to doctors, said he was concernd that 'many doctors may lose out on how they build up their future pension benefits.'
'In our view the new proposals will do little to ease the current complexity of tax planning, and if anything could make it even more complex for doctors,' he added.
Mr Pow said that, while it was good news that the government had recognised it needed to change pensions in a more radical way than its initial 50:50 pension proposal, reform of the tapered annual allowance would be needed if the government wanted to tackle the issue. He said the current tax limits were 'catching too many GPs and too many doctors'.
A BMA poll published last week found that three quarters of GPs had reduced their working hours or plan to do so because of punitive tax charges on pensions. The survey also found that in some parts of England, almost every GP had either already reduced their working hours or planned to do so to avoid the tax penalties.
Accountant Laurence Slavin, a partner at Ramsay Brown LLP, agreed that tax reform was necessary. 'It would have been far better to remove the penal effect of the annual allowance taper rather than tinkering with pension contributions,' he said.
Mr Macvie added: 'The tapered annual allowance is a flawed tax and ideally it should be scrapped at the earliest opportunity. It is overly complex and leads many doctors to sleepwalk into paying huge tax bills'.
The BMA has also said that, while changes to pension contributions will bring doctors 'some short-term relief', the core problem that needed addressing was tax rules. BMA chair Dr Chaand Nagpaul said without 'fundamental change' to the rules, the 'situation will only worsen, leaving patients with fewer experienced medics to care for them and even longer waits for treatment'.