BMA: Cut your workload for a higher pension

Concerns have previously been raised that recent changes to the pension tax regime were encouraging doctors to reduce the amount they worked. The annual allowance taper, introduced in 2016, restricts the amount of tax relief available to those with a threshold income over £110,000, reducing it from £40,000 to £10,000. This has led to some people incurring large tax bills on their pension contributions. 

However, the BMA has now produced guidance to show some consultants may also benefit from a larger pension if they reduce their hours. A case study included in guidance slides revealed a 40-year-old consultant working 12 programmed activities and using the scheme pays option would have a pension of £36,511 in today’s money at age 60. 

A graph in the guidance revealed if that consultant cut their PAs to eight, their pension would be around £42,500 in today’s money at age 60. A consultant who cut their PAs from 12 to seven would have a pension of around £42,000 at the age of 60. 

Tony Goldstone, a consultant radiologist at Hull and East Yorkshire Hospitals, said of the findings: “This is complete lunacy for the NHS and should be of the utmost concern to all within the NHS, and more importantly to all patients who use it. In going from 12 sessions to seven, that would typically have half the amount of clinical activity. And despite also paying 30 per cent less into their pension – after the scheme pays loan has been deducted, they are left with a higher pension.

“That doesn’t make financial sense for the Treasury, and of course does not include the much higher costs of having to reprocure that same work with locums or from the independent sector.

“As a clinical director who is already over budget from outsourcing, this is deeply concerning. This could trigger a workforce crisis of previously unseen proportions and with unimaginable consequences.”

He explained this is being caused by the “ill-conceived tapered annual allowance” and the “relatively high cost of using scheme pays over many years”.

“Individual trusts may be able to partially mitigate the effects by allowing employees to retain all of the employer contributions (which will then be taxed as income) if they are forced out of the pension scheme by this tax trap – and they need to take this action urgently,” he said.

Scheme pays is where taxes are paid by the scheme rather than by the taxpayer upfront. This is effectively an interest-bearing loan to be paid back from retirement benefit. 

A video accompanying the BMA gudiance noted scheme pays interest was 4.8 per cent for 2019, but has been as high as 5.8 per cent in recent years and is “still a significantly higher rate than most mortgages”. 

Speaking in a debate in Westminster Hall last month, Conservative MP Paul Masteron cited research showing over 50 per cent of those surveyed had used scheme pays to pay for their additional tax charges at some point. 

Rob Harwood, BMA consultant committee chair, told HSJ that, without urgent change to tax and pensions rules, the NHS would see a “significant workforce crisis” as doctors act to reduce the work they do to avoid “punitive charges”.

Dr Harwood said the BMA has produced resources as part of its effort to raises awareness of the harm the annual allowance and the annual allowance taper are having on the consultant workforce.

“The BMA has repeatedly warned [the] government over the damage their policy is having on both the NHS and on patients and has made absolutely clear to the Chancellor why some doctors are being forced to retire,” Dr Harwood said.

He added: “The majority of doctors will need to consider reducing their workload, abandon leadership positions and stop covering rota gaps.”

The BMA said it has entered into an agreement with Dr Goldstone to develop a calculator for BMA members that cover all pension schemes and branches of practice across all four nations. In the first instance it will be launched for consultants on the 1995 and 2015 pension schemes.

‘Opposite of what the NHS needs’

Danny Mortimer, chief executive of NHS Employers, said any suggestion that skilled senior clinicians are looking to reduce or end their NHS commitments should be a cause for alarm.

“Employers agree that changes to this tax regime would be desirable if difficult to achieve; we continue to make the case for introducing more pension flexibilities to help all members of the scheme manage their pension growth, to support the retention of all parts of our workforce,” Mr Mortimer said.

Saffron Cordery, deputy chief executive of NHS Providers, said there needs to be a change in pensions policy from central government to resolve this issue.

“Given the variation in these workaround solutions, there is now unhelpful competition on terms and conditions between neighbouring trusts. This is the opposite of what the NHS needs at the moment,” Ms Cordery said.

The problems with pensions extends to other members of the NHS workforce. Jon Restell, chief executive of Managers in Partnership, told HSJ the pension tax is one of several issues also affecting the recruitment and retention of senior managers.

“MiP argues that the scheme needs to be changed to allow staff including senior managers to limit their tax liabilities by, for example, having flexibility about how much of their salary is pensionable,” Mr Restell said. “The scheme also needs to ensure that members have as many options as possible in managing any tax liability they incur.”