The government has rejected a petition to make the NHS pension scheme tax-unregistered, arguing that the loss of tax-relief and lump sums “would not benefit the vast majority of members”.
Clamours for urgent reforms to the NHS scheme and associated tax rules have grown of late in response to a staffing crisis, with a spike in those taking early retirement leading to fears over the health service’s ability to cope with rising demand and ever-growing waiting lists.
Conservative party leadership hopeful Liz Truss, speaking at a Sky News hustings event, pledged to “do something” about the problem, specifically around the issue of pensions taxation.
The British Medical Association has been arguing for some time that existing rules are punitive and force people to retire earlier in order to protect their benefits. It was scathing about the suggestion, from NHS England and NHS Improvement, that delaying retirement could lead to favourable pensions outcomes, accusing the bodies of deploying “misleading” figures.
The vast majority of NHS Pension Scheme members are able to build their pensions tax-free. Therefore, a tax unregistered pension arrangement would not benefit the vast majority of NHS Pension Scheme members, as it would mean that they lose tax relief on their contributions.
Department for Health and Social Care
Besides changes to the finance act and associated tax regulations, the BMA has argued for the creation of a tax-unregistered pension scheme to tackle the staff retention crisis. A similar scheme was set up for the judiciary, with the same aim in mind.
Tax-unregistered scheme would lose benefits
A petition to make the NHS scheme tax-unregistered, lodged on the government’s website, attracted more than 11,200 signatures.
The petition argued: “The NHS pension scheme should be ‘tax un-registered’, so the annual allowance and lifetime allowance don’t apply. The tax bills resulting from annual pension growth can leave senior staff choosing to take on less work to reduce their tax bill - work they would have otherwise been willing to do.
“If the government made the scheme tax-unregistered (as in the Judiciary Pension Scheme) then senior staff will surely be more willing to undertake extra clinics, extra operating lists and contribute to the reduction in waiting times which have grown significantly since the pandemic.
“It is perversely punitive that staff who undertake additional sessions can be faced with a tax bill of more than what they earned for those sessions.”
The government responded on August 10, confirming that it has “no plans” to make the NHS Pension Scheme tax-unregistered, arguing that it would remove a “valuable benefit” in the form of tax relief on pension contributions.
This, it said, “would not benefit the vast majority of members”.
“Pensions tax relief is one of the most expensive reliefs in the personal tax system. In 2019-20, income tax relief on total contributions and National Insurance relief on employer contributions for pension savings cost the Exchequer £61bn, with around 60 per cent of relief being claimed by higher and additional rate taxpayers,” it explained.
“The annual and lifetime allowances restrict the cost of tax relief and ensure the incentive to save is targeted across society.”
Though the judiciary did benefit from a tax-unregistered scheme designed to tackle staff retention issues, the government’s response argued that the circumstances in that case were “unique”, as judges are unable to work in private practice after taking up office, while many “take a significant pay cut to join the judiciary”.
This combination of factors “is why the government introduced a reformed judicial pension scheme”, the response continued. They do not apply to NHS scheme members.
“The vast majority of NHS Pension Scheme members are able to build their pensions tax-free. Therefore, a tax unregistered pension arrangement would not benefit the vast majority of NHS Pension Scheme members, as it would mean that they lose tax relief on their contributions. An unregistered scheme would also mean that members lose the benefit of a tax-free lump sum of up to 25 per cent of the value of their pension on retirement,” it said.
NHS pension payments delayed as retirements surge 50%
More than 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.
It suggested that members who incur an annual allowance charge should make use of the scheme pays facility, which “is a proportionate means of meeting the charge without needing to find funds upfront.
“On that basis, the government does not plan to introduce a tax unregistered scheme for the NHS”.
The BMA has been approached for comment.
