James Gransby

Written by: James Gransby

James Gransby

Partner

Doctors unconvinced by NHS pensions fix

NHS England announced on 22 November that clinicians affected by an NHS pensions annual allowance tax charge for the 2019/20 tax year would have the impact of any tax payable reimbursed to them on retirement. It may have expected the reception to this to be positive. The reality has been far from it.

Clinicians are understandably worried that by the time they come to draw their pension, the government of the day (or successive governments between now and then) may renege on their promise. The British Medical Association therefore requested that a legal guarantee must underpin the proposals and has subsequently confirmed that it has received suitable assurances . The prevailing mood, however, remains one of mistrust.

This mood was not helped on 22 November when Health Secretary Matt Hancock wrote to NHS England CEO Simon Stevens: 'Depending on the detail of how you put the proposed approach into practice, the scheme could constitute tax avoidance. In deciding on this detail, you should seek to minimise this risk.' However, he added that it is in 'the wider public interest' to implement it.

NHS England has released more details of the measure, stating that members will be 'fully compensated in retirement for the effect of the Scheme Pays deduction' which will be a 'contractually binding commitment'. 

The compensation covers the full annual allowance tax charge, plus interest accrued thereon. The amount will generally be paid in the form of on-going annual payments in retirement which will be treated as income and so subject to deduction of income tax. Members who have previously opted out for some or all of the 2019/20 tax year are able to prospectively opt back into the scheme.

On the day of the announcement, Matt Hancock incorrectly stated on Twitter that: 'We’re scrapping the taper tax in the NHS – immediately – so staff aren’t penalised for working overtime'. The truth is that they have most certainly not scrapped the taper (that move would have been met with a much warmer reception). They have instead put forward a temporary solution to a much deeper problem.

GPs and dentists in England can benefit from this measure, alongside hospital doctors. However, for GPs and dentists without a 31 March year end this may be of little value. If a GP, say, has a 30 June year end, their 2019/20 profits have already been earned and crystallised. Any extra sessions they perform now would form part of their 2020/21 tax liability for which no similar measure has been put forward. 

Whilst all the major political party election manifestos promised action, a real resolution to the NHS pensions crisis would be to enact the recommendation suggested by the Office of Tax Simplification (published 10 October 2019) of removing annual allowance tax charges on defined benefit pension schemes. This would also have the benefit of addressing the same issue for clinicians elsewhere in the UK and other similarly affected public sector workers. 

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