The government will introduce an emergency measure to pay the tax bills of doctors and consultants in England affected by the tapered annual allowance, but the move has been criticised by experts.
Pensions Expert understands that NHS England will announce that members of the NHS Pension Scheme in frontline clinical roles will have their tax bills for breaching the allowance in the current financial year covered, in an attempt to shore up the health service over the winter.
These individuals can pay their tax through the ‘scheme pays’ process, which allows them to settle annual allowance tax charges of more than £2,000 through the National Health Service pension fund without needing to find cash up front. Instead, their benefits are adjusted at retirement and will pay interest.
Under the proposal, the government will then make good on any reduced pension before the doctors reach retirement.
Rather than rearranging the deckchairs, what we need is a fundamental review of how pension allowances work
Steven Cameron, Aegon
It is hoped that this will cause GPs and consultants who have been turning down additional work for fear of large tax bills to go back to taking on extra duties.
Introduced in 2016, the tapered annual allowance gradually reduces the allowance for those on high incomes, meaning they are more likely to suffer an annual tax charge on contributions and a lifetime allowance tax charge on their benefits.
The taper means that for every £2 of adjusted income above £150,000 a year, £1 of annual allowance will be lost.
A new consultation on the rules of the NHS Pension Scheme was published in September, which included a proposal to allow members to choose a personalised pension growth level at the start of each tax year.
Scotland chooses contribution recycling scheme
Doctors in England and Scotland will face different solutions for their tax problems, as the Scottish government announced on Monday an interim policy allowing senior clinicians to recycle their pension contributions.
The interim scheme – in which members can opt to get their employer pension contributions paid to them as part of their basic pay – will be available to all staff who can evidence that they are likely to breach the annual allowance in the 2019-20 financial year and generate a tax charge as a result.
This new temporary policy will “provide eligible staff with an alternative option to restricting their hours in order to reduce financial penalties, and will ensure crucial services are maintained as demand on the health service continues to increase”, the Scottish government stated.
It added that the policy will run until the end of the current financial year.
A ‘bizarre money-go-round’
Sir Steve Webb, director of policy at Royal London and former pensions minister, said that the plan from NHS England “amounts to a bizarre money-go-round, with one part of the public sector paying money to another in order to resolve a short-term crisis”.
He said: “The fundamental problem here is the complex system of pensions tax relief. The failure of the government to address this issue has resulted in emergency measures having to be taken in the middle of an election campaign simply to avoid a winter crisis in the NHS.”
Government to review tax taper for NHS clinicians
The government is to review the operation of the tapered annual allowance for senior clinicians, following a vigorous campaign by NHS doctors.
Sir Steve noted that the Scottish and the English proposals “are just stopgap solutions”.
He added: “What is really needed is for the Westminster government to abolish the tapered annual allowance and deal with the complexity for all those affected, wherever they live and whatever job they do.”
Steven Cameron, pensions director at Aegon, argued that the solution proposed by NHS England could risk triggering another tax charge.
This could happen if the total paid into the pension in a future year exceeds the allowance at that time, he noted.
Mr Cameron added: “Rather than rearranging the deckchairs, what we need is a fundamental review of how pension allowances work, not just for the NHS, so they reward good savings behaviour and never penalise taking on extra work.”
