Government backs pension flexibility to stop taxes undermining NHS workforce

Doctors will be able to halve the rate at which their pensions grow under interim government plans to stop punitive taxes forcing doctors to reduce their working hours or quit the NHS.

Health and social care secretary Matt Hancock (Photo: Barcroft Media)
Health and social care secretary Matt Hancock (Photo: Barcroft Media)

The DHSC and the Cabinet Office said on Monday that the government will consult on plans for a 50:50 pension option - a mechanism mooted in the five-year GP contract agreement earlier this year.

The 'partial pension' option, which already operates in the local government pension scheme, allows scheme members to halve their contributions - and therefore the rate at which their pensions grow.

Plans to introduce the 50:50 option follow BMA warnings that punitive pension taxes are threatening to leave the NHS facing a 'massive loss of capacity'.

GP workforce

GPonline reported last month that one in three GPs had been forced to cut back on work or refuse shifts to avoid taxes that can mean they lose money for working more. The BMA has warned that even GPs in their 30s have been advised by accountants to reduce their working hours to avoid incurring annual allowance tax charges.

The proposed new flexibility for NHS pension scheme members won a 'cautious welcome' from the BMA, but doctors' leaders and accountants have warned that the 50:50 option does not go far enough.

BMA chair Dr Chaand Nagpaul said it was 'essential that these options are no more than a short-term mitigation whilst the much needed reform of the pensions taxation system is undertaken'.

More radical solutions should be considered such as increasing the annual allowance threshold 'to a position where it removes the majority of key NHS workers from this charge', an overhaul of the tapering mechanism that reduces tax relief on pensions in stages for people earning over £110,000, and scrapping the complex, unpredictable mechanism that currently governs how the annual allowance is calculated, according to the Association of Specialist Medical Accountants (Aisma).

Pension flexibility

Responding to the government's pledge to consult on the partial pension plan, the BMA welcomed indications from the government that it was 'willing to discuss with the BMA other models for pension flexibility in order mitigate the current disincentives for doctors to provide NHS services'.

The government said it had listened to senior doctors' concerns that pension tax charges were 'discouraging them from taking extra work to support patients and causing them to question whether to remain in the NHS Pension Scheme'.

It acknowledged that the recent review of the GP partnership model found this issue was 'a factor for many GPs in deciding to retire early' - pointing out that 610 GPs took early retirement in 2018/19 - 57% of all GPs who retired in that financial year.

Health and social care secretary Matt Hancock said: 'Each and every senior consultant, nurse or GP is crucial to the future of our NHS, yet we are losing too many of our most experienced people early because of frustrations over pensions.

NHS pensions

'We have listened to the concerns of hardworking staff across the country and are determined to find a solution that better supports our senior clinicians so we can continue to attract and keep the best people.

'The reforms we are setting out today will give clinicians greater flexibility to manage their pensions, have more control over their future, and offer a deal that’s fair to doctors, taxpayers, and the patients they care for.'

The government said the new pension flexibility would be available to 'senior clinicians who can demonstrate they expect to face an annual allowance charge', which would mean doctors who have built up more than £40,000 of benefit in their NHS pension in a year, or those who have an adjusted income of over £150,000.

BMA chair Dr Chaand Nagpaul said: 'For many months, the BMA has been expressing concerns about the current pension taxation system, the unintended but serious consequences this is having on patient care and the wider NHS and so we welcome the fact that the DHSC and NHS England have today acknowledged the problem.'

He welcomed government willingness to discuss options other than the 50:50 mechanism, adding: 'The BMA has already outlined a number of temporary mitigations which, if swiftly applied, would stop experienced doctors leaving the NHS or reducing the hours of patient care they provide and we are giving a cautious welcome to the fact this is a step in the right direction for reform.

'We have modelled the proposed 50:50 scheme and it is clear that by itself this proposal will not remove the disincentive for doctors to reduce their working hours. It needs to be part of wider reform.

'Given the complexities of the NHS pension scheme and the fact that individual circumstances vary, it is essential that any flexibility offers far more than simply paying half of the employee’s contribution in order for half the accrual of pension. In addition, there needs to be the ability to recycle the employer’s pension contribution on the percentage of pay that is no longer pensionable. This is commonplace in other sectors with the chancellor describing such payments as "regular".'

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