The government has rejected calls from thousands of doctors and NHS leaders for broad reform of the pension system, saying measures introduced last year were sufficient to reduce the risk of front-line staff running up tax bills for working overtime.
In 2020 the government launched a consultation on a package of measures to make the NHS pension scheme in England and Wales, which covers hundreds of thousands of medical personnel, more flexible.
The consultation came after the NHS confronted a crisis when thousands of doctors turned down extra shifts due to fears the additional income from added work needed to reduce a patient backlog would breach their annual pension allowance and trigger big tax bills.
The annual allowance is the amount that can be saved into a pension each year tax-free before tax charges apply. The standard annual limit is £40,000 but tapers down to £4,000 for the highest earners, which include most hospital consultants and general practitioners.
However late on Wednesday, the government revealed that the majority of more than 2,200 respondents, including NHS leaders and a former pensions minister, had called for wider reforms to the system of pension tax relief, arguing that flexibility was “no substitute”.
Responding to the consultation, the government decided against introducing further flexibility to the NHS pension schemes, such as allowing doctors to change the rate at which their pensions grow to mitigate allowance breaches.
Instead it said doctors’ concerns over tax bills for doing extra hours had been addressed by 2020 changes that raised the threshold at which doctors would fall into the scope of an allowance breach from £110,000 to £200,000.
“Based on income from NHS work, raising the threshold income to £200,000 (from £110,00) is estimated to take up to 98 per cent of consultants and up to 96 per cent of GPs out of scope of the taper,” said the Department for Health and Social Care, in its response.
The department also said that easing the tapered annual allowance was the “fairest” way to deal with concerns about the pension tax relief system, which it said was costing around £50bn a year, with 60 per cent of this claimed by higher earners.
“A tax solution to address the taper issue is the simplest to understand and administer; it directly targets the issue that has been raised, is fairer across different workforces and retains appropriate limits on tax-free pension saving for the very highest earners,” said the consultation response.
The majority of responses to the consultation came from individual doctors and clinical staff who called for the tapered annual allowance to be scrapped, saying doctors struggled to understand how it worked.
Responding to the news that the government would not go further, Vishal Sharma, pensions committee chair at the British Medical Association, emphasised doctors’ contributions during the Covid-19 crisis but stopped short of calling for them not to work longer hours.
He said: “The NHS entered the pandemic with historic workforce shortages, and it needs to retain every doctor it has as we face the daunting prospect of moving through this second wave and into the recovery stage of the pandemic.”
Dr Sharma branded the decision to offer no further latitude over pensions as “a wasted opportunity to truly reform the complex pension taxation system that continues to disincentivise our most experienced doctors from offering their full potential to the health service and their patients”.
Chris Hopson, chief executive of NHS Providers, which represents organisations across the healthcare sector, said NHS pensions policy was a complex area and more time was needed “to understand and consult with trusts regarding the full impact and current effect of pension taxation in the NHS”.
“The NHS workforce has been placed under strain like never before during this pandemic and so it is all the more important that we do everything we can to ensure our hardworking staff feel supported by the government at this time.” he added. “This will be vital if we want to retain our most senior clinicians in the years to come.”