From 2014/15 the government will reduce the tax free lifetime allowance for pension savings from £1.5 million to £1.25 million and the tax free annual allowance from £50,000 to £40,000.
Russell Finn, client principal with medical accountants Ramsay Brown and Partners, said the changes to the pension lifetime allowance mean GPs will pay 55% tax on any pension savings above £1.25m.
He warned that this would affect the majority of GPs, since tax charges would apply to anyone with an annual projected pension above £54,000 a year. The average GP pension is £60,000.
A GP with a projected pension of £65,000 a year will face a tax charge of £137,500 when they retire due to the lifetime allowance changes, Mr Finn added. ‘If you are in that situation you will need to take independent financial advice,’ he warned.
Changes to the annual allowance will also affect GPs who have purchased ‘added years’ and those earning above £150,000, Mr Finn said.
‘Anyone paying the top rate of tax will also pay the top rate of tax on their pension,' Mr Finn added. He said that due to the changes ‘a few people’ would now be better off leaving the NHS Pension Scheme.
‘The good deal is less of a good deal now, but it is still a good deal,’ he said.
Reacting to the news on Twitter, BMA pensions chairman Dr Alan Robertson said reductions to the annual allowance are likely to impact around 21,000 NHS workers.
Reduction in AA limit likely to impact on 21,000 NHS workers now (vs 8,000 with the previous limit) #bbcbudget #as2012 @thebma
— Alan Robertson (@alanjrobertson) December 5, 2012
A BMA spokesman said: 'The change to the tax allowance on pensions savings will affect thousands of doctors – not just the highest earners. Doctors with long service in the NHS could be facing a large tax bill. This is on top of the whole raft of changes the government is implementing to NHS pensions including raising the normal pension age and hugely increasing contributions.'
During the Autumn Statement the government also revealed plans for a 1% pay uplift for public sector workers and the continuation of national pay for NHS workers.
However Mr Osborne said the government would ‘continue to seek efficiency savings in the NHS’.
Money Talks blog: Radical changes to GP retirement plans after Autumn Statement
