Pension rules making it unviable for some doctors to stay in NHS, says MP

Dr Poulter said current policies, and the ‘punitive financial penalties that result from them’, will cause many senior NHS workers to take drastic steps such as reducing hours, leaving leadership roles or taking early retirement. The MP went on to claim these pension penalties will result in senior and long-serving NHS workers aged 59 or 60 potentially losing over £100,000 from their pension pot if they delay retirement by one year, rather than retiring this year.

Poulter claimed senior and experienced NHS workers are being advised by actuaries and accountants to reduce their working hours to avoid being hit by huge pension tax bills that will see them working for little pay, or in some cases no pay at all. Doctors, nurses and healthcare professionals cannot choose the rate at which they contribute to their pensions because they have to contribute at a fixed rate. This year, due to certain factors related to inflation, we are facing a real challenge that is created by the pension penalties that exist under the current legislation, he told the House.

Poulter (photographed below thanks to Gov.Uk) said the ‘Scheme pays’ option from the Government (which is effectively a loan against a pension) is not helpful now because it attracts an interest rate of CPI plus 2.4 per cent. He claimed that many doctors and nurses are left with little option but to pay the tax from their post-tax income instead, take out bank loans or, in some cases, increase the size of their mortgages.

He added that senior workers are being billed thousands of pounds in tax for ‘pseudo growth’ in their pensions which never materialises as inflation continues to rise. The Government only raised the annual earnings taper thresholds to £200,000 and £240,000 which is not an effective solution to issues with the annual allowance, as the unfair interactions between pension taxation and the NHS pension scheme regulations remain.

He made three suggestions:

• Address the issue of CPI and rising inflation and amend the Finance Act - with only growth above inflation tested against the annual allowance.
• In the year 2022-23, allow the NHS in all four nations to replicate the 2019-20 compensation scheme to protect clinicians from pension growth.
• To solve the wider and long-term issues facing senior and experienced NHS staff, move to a non-tax-registered scheme.

Jonathan Edwards, Independent, said the Government should do the same as when a similar problem happened with the judiciary. There it brought in a tax unregistered scheme which, critically, breaks the link between working more hours and the additional tax bill, as well as ensuring that the right amount of tax is paid. This is a solution that Poulter supports.

SNP MP Amy Callaghan said this really significant issue needs to be noticed and action needs to be taken, but not like the action that was taken with the taper, which did not affect enough doctors.

The new Economic Secretary to the Treasury Richard Fuller accepted Poulter’s complaints about the disparity between the CPI figure used for uprating the opening value of a member's benefits and the CPI figure used to assess revaluation in public service schemes. But he said the current approach provides certainty to individuals at the start of the tax year about what their opening pension value will be for annual allowance purposes. He said for most NHS employees in the 1995 and 2008 sections of the NHS pension scheme, their accrued benefits remain linked to their final salary, which means that they do not have their benefits revalued each year.

Fuller noted that the BMA and others have said that the action taken at Budget 2020 on the tapered annual allowance was not enough. But the cost of this intervention was £2.2 billion over five years, and it was targeted at the very highest earners in society. It will be hard to justify focusing more government support on them, especially in the current climate, he said. This includes replicating the temporary scheme used in the 2019-20 tax year.

On Poulter’s third recommendation for an unregistered scheme, Fuller said: “A distinction remains to be drawn between NHS high earners and the judiciary, and that there are unique circumstances relating to judicial appointments – in particular, that judges are unable to return to private practice after taking up office, and that many judges take a significant pay cut to join the judiciary.”

The full debate is here.

By Hamant Verma, CIOT Senior External Relations Officer