• Pension reforms have resulted in high-earning NHS staff taking early retirement
  • Union says it is a concerning trend which penalises the public sector
  • NHS Providers says it has exacerbated workforce shortages

High earning NHS employees including medical consultants and senior managers are choosing to leave the NHS because of government caps on the amount of tax relief that can be applied to pension schemes, the Department of Health and Social Care has admitted.

The DHSC said in its latest evidence to the Review Body on Doctors’ and Dentists’ Remuneration – published in January – that “there is evidence of high earning individuals opting-out of the scheme” or “leaving NHS employment through early retirement”.

The report said this may be “due to the effect of the new lower lifetime and annual allowances tax limits”, which could “potentially affect some high earners”.

The allowances limit the amount which can be put into a pension with tax relief applied. Since 2010 there have been several pension reforms which have gradually reduced the “lifetime allowance” from £1.8m to £1m – meaning there is now no tax relief on payments once the pot tops £1m.

The most recent reduction was made in April 2016, when the lifetime allowance dropped to £1m and a more severe taper on the “annual allowance”, which governs how much tax relief can be paid into a pension pot each year, was introduced.

Figures in the DHSC’s report revealed the number of medical doctors who claimed their NHS pension earlier increased from 201 in 2011-12 to 241 in 2016-17. The number of GPs taking early retirement and claiming their pension early rose from 591 to 721 over the same period.

Jon Restell, chief executive of Managers in Partnership, said the issue of individuals opting out of the pension scheme or leaving NHS employment “is a concern”.

“The problem with the lifetime allowance is that it now almost exclusively penalises the public sector schemes,” Mr Restell told HSJ.

“If the government keeps lowering the allowance it will be a problem, as will further changes to tax relief on pension contributions,” Mr Restell said. “It will start to really impact on people at middle grade ranks.”

Mr Restell added that he would warn the government of the dangers of making “any further in-roads” into these allowances.

NHS Providers policy adviser Paul Myatt told HSJ that trust leaders have said reductions to the private pension allowance in recent years have encouraged “some senior clinical staff, including medical consultants, to retire earlier than they otherwise may have”.

He said: “At a time when the NHS faces significant workforce shortages, and trusts are doing all they can to keep the staff they already have, this hasn’t helped.”