• DHSC says decision of whether to pay unused pension contributions lies with individual trusts
  • Option described as one of the most “significant” details in the new consultation, but others warn of a “postcode lottery”
  • DHSC says decision will be a “matter for individual employers to take”

Trusts will be allowed to determine whether they will pay or keep the contributions they would be required to pay into doctors’ pension funds if their clinicians opt for one of the government’s proposed pension tax workarounds.

Last week, the government published its pension tax changes consultation. One consultation proposal would give doctors the ability to reduce their pension contributions, rather than having to opt out the scheme entirely, to avoid being hit with large tax bills.

In what has been described as one of the most significant statements in the consultation, the Department of Health and Social Care was unequivocal that it was down to the individual employer trusts to decide what they should do with the unused employer contribution amounts. 

The document stated: “Where clinicians use the flexibilities to choose a lower accrual level than the full rate, the employer will also pay lower contributions. Employers have the discretion to pay to the member unused employer contributions in these circumstances, although this would be a decision for individual employers.

“Unused employer contributions could be paid by a non-recurrent lump sum at the end of the scheme year after any updating of the chosen accrual level for that year.”

It continued: “The decision on paying unused employer contributions will remain a matter for individual employers to take.”

In its long-awaited consultation, the government proposed allowing GPs, senior nurses and consultants to annually customise their pension growth level and pay correspondingly lower contributions. This would be in 10 per cent increments – such as 30, 50 or 70 per cent – of the full accrual level.

Members could also “top-up” towards the end of the tax year, once they have a clearer idea of their tax situation, and individuals with large pensionable pay rises can phase it over several years.

‘One of the most significant comments’

Neil Bhan, a partner at law firm DAC Beachcroft, considered the discretion option to be “one of the most significant comments” in the consultation document.

He added: “This will be of direct relevance to employers who have already implemented such arrangements. The government’s formal response to the consultation will include more detail on this point.”

Earlier this month and prior to the government consultation document being published, NHS Employers released guidance for trusts for improving the situation for doctors worried about pension tax implications. Among its suggestions was paying unused employer contributions as salary when a clinician had opted out of the scheme, adding that such payments “are one way to restructure the employee’s total reward package in order to maintain its value”. 

However, Claudia Paoloni, president of the Hospital Consultants and Specialists Association, said doctors were already facing a “postcode lottery” which meant some trusts gave doctors pay in lieu of employers’ contributions while others do not.

She added: “The so-called flexibilities on offer, at best, mean doctors paying in less to receive a lower pension. This still penalises those who step up to bridge service gaps left by long-term underfunding and understaffing.

“This messy attempt at a workaround merely underlines the problems created by the Treasury’s refusal to scrap the taper and reform pensions allowances – the true solution to the growing care crisis.”

The British Medical Association echoed fears of a postcode lottery should there be local variabilities in what happens to employer contributions, and warned the possibility of different levels in patient care could result.

It said in a statement to HSJ: “The BMA remains deeply concerned that, whilst the consultation shows the government is at last listening to the points we have raised, there isn’t much in it to indicate that the government is truly taking note and wants to bring about true reform of the pension taxation laws.

“Most notably, scrapping the tapered annual allowance and the removal of annual allowance from public sector defined benefits schemes.”

Ending the hokey-cokey

When asked for further comment by HSJ, the DHSC reiterated employers could decide whether to pay any unused contributions where members take up flexible accrual.

The department said the purpose of the suggestion is to enable most high-earning staff to enter the NHS Pension Scheme, effectively ending what is known as the hokey-cokey tactic – where staff opt in and out of the pension scheme throughout the year.

It added: “Given the design of the flexible accrual facility it is considered that, if employers decide to add the value of unused employer contributions to staff pay, they would pay the balance as a non-recurrent lump sum at the end of the year.”

Since 2016, the annual allowance taper has lowered the amount of tax relief available to those with a threshold income over £110,000, gradually reducing it from £40,000 to £10,000. Concerns have been raised this has left higher earners in the NHS pension scheme with large tax bills, encouraging some to opt out of the schemeturn down additional work or leave the NHS entirely.