BMA blasts Sunak role in NHS pensions taxation

On August 1, the BMA posted a letter on Twitter that it had sent to Sunak and fellow candidate for the Conservative party leadership, Liz Truss, asking for them to promise changes to the way NHS pensions are taxed and deliver a solution within the tax year.

In the letter, written by BMA council chair professor Phil Banfield, the candidates were told that “if we are to have any chance of tackling the care backlog in both primary and secondary care, we must stem the tide of senior doctors leaving the NHS due to punitive pension taxation rules”.

Pensions Expert contacted the leadership campaigns of Sunak and Truss seeking their responses to the letter. The Truss campaign did not respond to requests for comment.

The issues with the standard annual allowance and the lifetime allowance, coupled with the features of the NHS pension scheme that result in disincentives for senior doctors to provide more care for patients, remain

Dr Vishal Sharma, BMA

A spokesperson for the Sunak campaign said: “Rishi hugely values the NHS and will always back everyone working to help keep our country healthy.”

‘Huge tax bills on non-existent pseudogrowth’

The standard NHS pensions annual allowance is £40,000. A taper lowers the annual tax-free allowance for pension contributions from £40,000 to as low as £4,000 for those earning an “adjusted” income of more than £240,000 and a “threshold” income of more than £200,000. 

Those that cross the limit, however, are hit with tax bills, while members also face a lifetime allowance of £1mn. 

With pensions growth subject to tax above the tax-free allowance, the BMA has previously suggested that senior clinicians and other NHS staff are effectively paying to work, and has claimed that others are cutting their hours and going part-time in order to protect their pensions. 

The health and social care select committee published a report in July criticising the NHS pensions taxation regime and referenced a recent survey by the Royal College of Surgeons of England, which found that 69 per cent of respondents had reduced the amount of time they spent working in the NHS as a direct result of changes to pension taxation rules.

“It is a national scandal that senior doctors are being forced to reduce their working contribution to the NHS or to leave it entirely because of NHS pension arrangements,” it said. 

“We accept the government has made some progress in this direction with changes to the taper rate of the annual allowance.

“But the problem persists and having rejected calls to establish a tax unregistered scheme the government must act swiftly to establish an alternative scheme and prevent the early retirement of consultants from the NHS.”

In his letter to the candidates, Banfield wrote: “We are asking for a commitment from the future Prime Minister to solve the pension taxation crisis once and for all within this tax year.”

“In the short-term Government must address the urgent issues caused by inflation, resulting in doctors incurring huge tax bills on non-existent ‘pseudogrowth’, by amending the Finance Act or introducing an NHS annual allowance compensation scheme.”

“In the longer term introducing a tax unregistered scheme for higher earners in the NHS, similar to that granted to the judiciary, would provide a creditable, fair and affordable solution that would remove the barriers currently limiting the amount of care doctors can provide for their patients,” Banfield continued.

In July, MPs called for a tax unregistered NHS pension scheme, suggesting that this could prevent early retirements among NHS workers. 

“One of the biggest threats to the retention of the most senior and experienced NHS staff is the punitive and unfair interplay between long-standing government pension taxation policies and the NHS Pension Scheme,” Conservative MP Richard Holden told MPs in a House of Commons debate.

Sunak lifted the two annual allowance thresholds

Statistics from NHS Digital showed that there were 9,737 retirements in the three months to April 2022, as first reported by the Health Services Journal. This is 50 per cent higher than the same three months in any of the past five years.

Over a thousand NHS pensioners have seen their pension payments delayed as the NHS Business Services Authority, which administers NHS pensions, struggles to cope with a spike in retirements and resignations.

A spokesperson for Sunak said: “As chancellor, Rishi raised the two tapered annual allowance thresholds for pensions by £90,000 to support NHS staff and the delivery of public services.

“This meant that from 2020-21 threshold income will be £200,000. As such, individuals with income below this level will not be affected by the tapered annual allowance, and the annual allowance will only begin to taper down for individuals who also have an adjusted income above £240,000.

“As prime minister he would continue to support the NHS and its staff.”

BMA pensions committee chair Dr Vishal Sharma told Pensions Expert: “It is disappointing that as a former chancellor and now candidate for prime minister, Mr Sunak cannot see that even after these changes to the taper, senior doctors are being forced to reduce their NHS working hours or leave the NHS entirely because of current pension arrangements.”

“As the BMA warned at the time, the changes to the taper in 2020 did not solve the problem, and in fact the former chancellor made the problem even worse by freezing the lifetime allowance, contrary to the then prime minister’s campaign promise to fix the problem. 

“It is clear that Mr Sunak still fails to understand that the problem was never just the taper,” Sharma continued.

“The issues with the standard annual allowance and the lifetime allowance, coupled with the features of the NHS pension scheme that result in disincentives for senior doctors to provide more care for patients, remain.” 

NHS bosses have directly contacted Sunak’s successor, Nadhim Zahawi, in a bid to change NHS pension tax rules.

“We must bring to your attention the very real risk that rapidly rising inflation will deter even more senior doctors from working additional hours — that is, unless urgent changes to pension tax calculations are brought in this year,” NHS Employers chief executive Danny Mortimer wrote in a letter to the chancellor on August 4.

 “The issue of rapidly increasing inflation causing a spike in pension growth is preventing senior medical staff from carrying out the additional work that the NHS desperately needs them to undertake.”

Mortimer asked for the chancellor to take action in order “to allow pension growth across both the NHS Pension scheme and the reformed scheme to be aggregated before it is tested against the annual allowance”.

He also requested the amendment of calculations in order to exclude pension growth from the annual allowance. 

A Treasury spokesperson said: “We want to make sure doctors spend as much time as possible treating patients — which is why the pensions we provide are some of the most generous available, meaning that fewer than 1 per cent of pension savers face an annual allowance charge.”

“We keep all taxes under review.”