• NHSE scheme to cover pension tax bills has not been extended into 2020-21 
  • Concerns raised changes in clinicians’ working patterns during pandemic may penalise clinicians
  • Former pensions minister says “strong case” for extension

NHS doctors are at risk of being hit with “large and unexpected” pension tax bills due to changes to their work patterns during the pandemic, experts are warning.

Sir Steve Webb, the pensions minister between 2010 and 2015, is among several commentators and experts calling for an extension to tax relief measures to ensure clinicians are not “penalised for their additional work” this year.

The issue has arisen because many doctors have had to change their work patterns – including working extra shifts - in 2020-21 to help the NHS’ response to the pandemic. This means they become at risk of breaching the £40,000 annual allowance taper, even if they earn below the £200,000 income threshold.

Up to that point, an individual can save up to £40,000 in their pension during a financial year before being taxed, which then decreases the higher their income is. The higher the income, the lower the annual allowance. The Department of Health and Social Care said most clinicians, based on their NHS earnings, would not be affected.

Under NHS Pensions Scheme’s scheme pays mechanism, individuals can choose to have their tax charges paid by the scheme on their behalf to HMRC. But that choice can only be made by those contributing more than £40,000 to their pension.

In 2019, NHS England announced an “annual allowance compensation scheme” which not only extended how long clinicians had to decide if they wanted to use Scheme Pays but also enabled them to pay back the amount taken from their pension to cover their tax upon retirement.

However, this scheme was not renewed for 2020-21, leading to concerns that the extra shifts worked during the covid-19 crisis would tip doctors over the allowance taper’s threshold.

As it stands, scheme pays elections must have also been made by 31 July last year to qualify.

‘Penalised for their additional work’

Sir Steve, now a partner at consultants Lane Clark and Peacock LLP, told HSJ there was a “strong case” for extending the 2019-20 compensation scheme and that most people would be “shocked” if clinicians were later hit by “large and unexpected” tax bills.

He said: “Extending the 2019-20 scheme, which was largely seen as a hurried response to pre-election pressure, would make sure that those who are contributing so much this year do not end up being penalised for their additional work.”

Graham Crossley, head of development of wealth management firm Quilter, said his firm has written to both the Department of Health and Social Care and the Treasury, asking for current rules to be amended so Scheme Pays elections can be made within a four-year time period, giving clinicians more time.

He added: “This is an absurd scenario that penalises hard-working medical professionals and it needs to be rectified. Allowing members of the NHS pension scheme to make a Scheme Pays election within a four-year time period is an easy fix.”

Rachael Hall, head of medical services at financial planning firm Sandringham Medical, said the tapered annual allowance had a “punitive” and “disproportionate” impact on clinicians last year.

“I would call upon the government to both recognise the additional, and often unpaid, sessions being worked by clinicians during the pandemic, and to ensure that they are not once again the unwitting victims of annual allowance charges at a time when they are particularly vulnerable,” she said.

Threshold rise

In the March 2020 budget, Treasury boss Rishi Sunak raised the annual allowance taper threshold to £200,000 – an increase of £90,000 from £110,000. That meant people who earn less than £200,000 are entitled to their full £40,000 annual allowance on their pension contributions.

A DHSC spokeswoman said: “Changes to the annual allowance threshold have taken up to 98 per cent of consultants, and 96 per cent of GPs, out of the taper altogether based on their NHS earnings, and gives clinicians more headroom to take on overtime without fear of large tax bills.

“NHS employers are also supporting doctors to understand their tax position and how their NHS work can best suit their financial situation.”

NHSE has been contacted for comment.

UPDATED: This article has been updated to clarify that some NHS clinicians, due to changes in work patterns during the covid pandemic, could incur significant pension tax bills even if they earn below the £200,000 income threshold.