Government promises 'most flexible NHS pensions ever' in bid to solve workforce crisis

A government consultation launched today promises to create the 'most flexible NHS pensions ever' - but experts say the plans are unlikely to help GPs avoid swingeing tax penalties that have forced many to reduce their working hours.

Health and social care secretary Matt Hancock (Photo: Tolga Akmen/Getty Images)
Health and social care secretary Matt Hancock (Photo: Tolga Akmen/Getty Images)

The DHSC is consulting on plans that would allow NHS pension scheme members to choose 'a personalised pension growth level at the start of each tax year'.

Under changes that could take effect from April 2020, doctors could choose to reduce their contributions to bring down the rate at which their pension grows - reducing their chances of breaching annual allowance limits that can trigger heavy tax penalties.

Rather than the '50:50' pension option offered in a consultation earlier this year - quickly dismissed by the BMA and others as doomed to fail - the latest proposal would allow contributions to be reduced in 10% increments from the full contribution.

Pension tax

Doctors could choose to contribute, for example, 70% or 30% or any other amount reduced from the full contribution in 10% blocks - reducing the growth of their pension pot for that year by a corresponding amount.

The consultation will also set out plans to allow doctors to 'fine-tune their pension growth towards the end of the tax year when they are clearer on total earnings'. This is intended to allow pension scheme members to ‘top-up their pension pot to the maximum amount without hitting their tapered annual allowance limit'.

Scheme members whose pensionable pay rises sharply within a financial year could also be allowed to phase in the corresponding rise in their pension contribution.

The DHSC is also promising to 'work with employers and staff representatives to develop a new tool to help clinicians use and tailor the new flexibilities to support their individual circumstances'.

NHS workforce

The DHSC estimates that under the current system, one in three consultants and GPs 'may be incentivised not to go above and beyond for their patients by taking on extra shifts on top of their contracted hours, because of how the NHS pension scheme interacts with the wider pension tax rules'.

GPonline reported earlier this year that one in three GPs had been forced to reduce their working hours or turn down extra shifts because of tax penalties that can mean doctors lose money by working more.

In a speech this month, NHS chief executive Simon Stevens called for 'significant further action' from the government to tackle the problem, calling it a 'pension crisis' for the health service. Tax on pensions is among the key factors blamed for the continuing decline in the full-time equivalent GP workforce.

Experts say that while the latest proposals from the government are 'better than nothing' and allow doctors more flexibility to mitigate the problem with tax on pensions, the changes will benefit GPs -particularly partners - less than other doctors who are salaried rather than self-employed.

Complex problem

Specialist medical accountant Andrew Pow, a partner at Mazars UK LLP and board member of the Association of Independent Specialist Medical Accountants (Aisma), told GPonline that for many GPs it remained 'very difficult to predict growth' in pensions - and that tailoring contributions to avoid tax penalties would not be straightforward.

He said: 'It needs people to have up-to-date pension records to have a base on which to do calculations - this highlights the need for Primary Care Support England (PCSE) to sort out the significant gaps in pension records. Many people do not have access to accurate total rewards statements.'

This gap in information was 'the biggest downside' to the proposals from GPs' point of view, Mr Pow explained.

He warned that reforming the tapering mechanism that creates 'cliff edges' - sharp rises in tax as doctors pass annual allowance thresholds - remained key. An overhaul of the annual allowance and tapering is not included in the DHSC consultation, but ministers reiterated that the Treasury has pledged to look at this.

BMA consultants committee deputy co-chair Dr Phil De Warren-Penny said: 'We are encouraged by the news of the consultation – it is something we have pressed the government on for some time. It’s a useful contribution to the work that is needed to reform pension taxation laws, but while the options within this consultation will help alleviate the issues, they will not resolve it.

'To succeed we need to see NHS employers doing their part and recycling all of the employer contributions. If they don’t it’s still an effective pay cut for doctors for doing extra shifts. The real heart of the problem is the tapered annual allowance which must be removed along with the annual allowance and lifetime allowance.

'For GPs and doctors working in the armed forces, they too need to see measures to afford them similar temporary relief. Without these measures, many GPs and those working in the armed forces will be forced to further reduce their hours or leave altogether.'

Health and social care secretary Matt Hancock said: 'Our new plan means every senior clinician will be able to carry out life-saving work for patients safe in the knowledge they have more control over their pension, their future and their retirement than at any other point in NHS history.

'Today we’re taking a decisive step in fixing this issue for good so patients can feel the impact in GP surgeries and hospitals across England.'

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