- NHS Employers calls for Treasury to review impact of pensions tax rules
- Suggests pensionable cap to allow high earners to control the value of their pension
High earners leaving the NHS pension scheme because of changes to tax allowances could affect its “ongoing sustainability”, NHS Employers has warned.
In its 2019-20 submission to the NHS Pay Review body, NHS Employers said trusts are experiencing staff leaving the pension scheme, cutting down their hours, retiring early or quitting their jobs “due to the impact of tax allowances”.
It said NHS organisations also reported a decrease in applications for leadership roles, while retaining high paid staff “is becoming an issue”.
“The current contribution design relies on high earners paying higher member contributions to subsidise those paying lower contributions,” NHS Employers said. “If the trend of high earners leaving the scheme continues, this may have an impact on the yield of the scheme.
“We would welcome any review by the Treasury of the impact of current pension tax rules on key public servants.”
The warning comes after the government reduced the amount of tax relief that can be applied to pension schemes and dropped the lifetime allowance to £1m in April 2016.
NHS Employers suggested a pensionable cap may provide more flexibility for high earners to “control the value of their pensions accrual and avoid exceeding the tax allowances”.
However, it added changes to the scheme would require Treasury approval and need to be considered alongside pensions for other public sector groups.
HSJ revealed last year a quarter of a million NHS workers had opted out of the pension scheme over the past three years, with experts blaming a “punitive” government tax regime and the current cost of living.
An anonymous consultant told HSJ they were worried about the impact the tax regime could have on clinical work.
“There are currently issues with consultants receiving large tax bills due to the complex pension tax rules,” they said.
They added: “With a workforce shortage already I am really concerned about the implications this will have on the trust’s ability to cover lists and clinics. Currently consultants are working 12 or more sessions and if they cut back to 10 or less this will have serious effects on waiting lists.”
Last year, the government launched a consultation on proposals to change NHS pension scheme regulations, which includes introducing a new contribution rate.
Jon Restell, chief executive of Managers in Partnership, told HSJ that now the career average scheme has begun to mature, the higher contribution rates for senior staff are “no longer justified”.
“The proposed increase to employer contributions has been met in the short term by the government,” Mr Restell said. “We are concerned to gain clarity about what happens longer term, as there are potentially big additional costs for employers.”
He added: “There are further improvements that can be made to the scheme which would provide greater flexibility for pension scheme members, supporting retention as well as the management of much tighter economy wide tax allowances.”
NHS Employers submission