Cuts to pension tax relief deepen retention crisis for senior doctors
BMJ 2019; 364 doi: https://doi.org/10.1136/bmj.l206 (Published 17 January 2019) Cite this as: BMJ 2019;364:l206
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The last paragraph under the heading "Huge tax bills" should read:
Pension taxation is complicated. There is a “threshold income” at which tapering may occur if taxable income is over £110 000. If it is, you need to work out “adjusted income” which is broadly threshold income plus deemed pension growth from your pension savings certificate. For every £2 of “adjusted income” over £150 000, the annual allowance is reduced by £1 down to the minimum allowance of £10 000. Most doctors in the new 2015 pension scheme with a taxable income of £160 000-£170 000 will experience full tapering once their pension growth is added in, as those with an adjusted income of £210 000 or more will have the minimum annual allowance of just £10 000. This means paying tax on any deemed growth to their pension pot above £10 000 in the tax year April to April.
Competing interests: No competing interests
Your recent article on pensions (BMJ 2019;364:l206) was timely, as this tax year will be the last for carry forward of Annual Allowance from periods prior to the introduction of Taper. Established Doctors therefore almost universally face a 69.5% marginal tax rate. The shortage of NHS resource is not just about early retirement. Many will eschew additional work to take home 30p in the pound, whilst leaving the scheme entails taking a substantial pay cut. Both impact motivation and morale. Current and would-be Chancellors might care to google the elusive “Laffer Curve”.
Those seriously reviewing their options for the first time may also find some nasty surprises. Their contributions to the ‘95 scheme for several years up to 2015 may have been wasted as subsequent pay increases lagged inflation. One can measure the financial benefit of the ingenuity of the Treasury negotiators but can one assess the cost to the trust and morale of those fleeced? Meanwhile the return on many members’ future 2015 scheme contributions under “scheme pays” looks barely to match inflation – the benefit of the employer’s contribution wiped out by tax interest and actuarial reduction factors. That is the return on the value of the contributions as if paid as salary and taxed i.e .the equivalent of what could have been invested elsewhere by the member – whereas the scheme is supposed to be “investing” the higher untaxed amount. Given the vulnerability of locked up pensions savings to political meddling (especially in an unfunded scheme) this looks like a case of return free risk.
Dr Kathryn Fogg
Royal Brompton Hospital
Competing interests: No competing interests
We thank Drs A R Goldstone and O R Byass [1] and Dr Nick Hateboer [2] for their rapid responses alerting us to errors in this article.
We will publish a correction as soon as possible.
1 https://www.bmj.com/content/364/bmj.l206/rr
2 https://www.bmj.com/content/364/bmj.l206/rr-13
Competing interests: No competing interests
Very useful article, but it contains a mistake. Its says that "For every £2 of income over £110,000, the annual allowance is reduced by £1". The £110,000 is the threshold income. If your threshold income is over £110,000 you should calculate your adjusted income (usually threshold income plus pension growth). If the adjusted income is over £150,000 the annual allowance gets tapered by £1 for every £2 over £150,000, with a maximum reduction of £30,000. So, Consultants with an adjusted income over £210,00 (£150,000 + £60,000) will have an annual allowance of £10,000.
There is an awful lot of misinformation around about the annual allowance and the tapering and it is disappointing that The BMJ is adding to the confusion.
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Dear Stephen
I just want to thank you for your article in the latest edition of the BMJ; please ignore the following content if all you hear is rambling vitriol, however I felt compelled to respond with my thoughts.
I am a GP full time partner in my mid 40s who has worked consistently in that successful partnership for 15 years. We have reflected on our success (as have others) & one of the key reasons for our success has been our consistent team & generally full time clinical leads. It angers me that I am now being penalised through the pension tax system for delivery of such care. I wish to continue working full time - as the NHS & users wish me to - but feel somewhat foolish for this desire with the personal effect it will have.
As a GP partner I pay my employee + employer pension contributions. The NHS pension scheme, unlike other schemes, gives you no personal choice to cap your contributions (something I would be happy to do). Lastly PCSE & the NHS pension scheme have delivered an appalling service to me; not updating records/ inaccurate figures & unbelievably long time scales for such information. This has delayed friends' divorce financial settlements; rendered it impossible to make accurate choices about your pension & incurred tax fees at a later date you never even knew you were liable for. A private pension would have those figures available to you in a matter of 2 weeks, not 3 months! I am not even going to touch on the reduction in lifetime allowance (despite the desire for all to plan for retirement) + the annual allowance tapering system unique to the NHS scheme.
I am currently meant to work to 67 - yeah right!
Please feel free to quote me/ forward this to any parties that may be of interest.
Thanks for reading this & again for writing the article.
Yours
Rachel Dawson - GP, Bingley, W Yorkshire
Competing interests: No competing interests
Future pension legislation adjustments are projected to be much worse, since there exists severe underfunding.
Expert economists in the World Economic Forum explain why there comes a serious pension crisis in all Countries, with more than $400 trillion funds missing.
References
https://www.weforum.org/agenda/2017/05/5-things-you-need-to-know-about-t...
http://www3.weforum.org/docs/WEF_White_Paper_We_Will_Live_to_100.pdf
http://www.zerohedge.com/news/2017-05-26/global-pension-underfunding-wil...
Competing interests: No competing interests
I would like to thank the Government for the changes to taxation of pensions. Their extreme grab for cash has made me see the light. When I joined the NHS in 1984 at age 24, I had assumed I would be working until at least 2025. I have now submitted my retirement application and will be retiring before my 60th birthday.
I am therefore very grateful the taxation regime has changed because it has allowed me to see the light and to choose a better work:life balance.
Competing interests: No competing interests
Armstrong's article about the pension changes and the inevitable and predictable effect on the morale of senior doctors in the NHS was correct. However what may not be appreciated is that many of those who are now in this situation are the same doctors who worked the onerous 1:3 (or so) rotas in the 1980s for an hourly rate that was one third of their basic pay (who remembers the UMTs?). The quid pro quo for such a poor rate of remuneration was the slow accrual of a pension that would be worth 37 80ths of final salary (assuming one retired at 60 having started at 23).
A less obvious effect of being taxed out of the system is that one no longer has to work at a break-neck pace to maintain that final salary. Once out of the contributions that final salary is fixed and a better work-life balance can be achieved without (further) detriment to pension.
Full credit to the government for identifying the most effective way to demotivate a generation of doctors and simultaneously open the door for them to leave.
Competing interests: No competing interests
I feel sorry for the doctors being stung by these huge tax bills, but at least they know what the bills are. I have been trying to get Primary Care Support England (PCSE) (run by Capita, or as Private Eye refer to them "Crapita") to send NHS Pensions information on my current and past employment since June 2018 and they have still refused to do this. This information pertains to a single session I did at an out-of-hours provider in 2014. Without this information, NHS Pensions will not produce my Annual Allowance Pension Statement and without this, it is not possible to provide the Inland Revenue with my income information to allow them to calculate my tax bill. The delay in providing this in information is likely to incur a late-payment tax penalty from the Revenue. I have now enlisted the help of the BMA in trying to resolve this.
Similarly, PCSE refused to pay my Seniority payments after a change in employment resulted in their judging me to be ineligible. In this case, the BMA was able to make them see the error in their ways.
Thus, these are two direct financial drivers making GPs retire earlier.
Competing interests: No competing interests
Re: Cuts to pension tax relief deepen retention crisis for senior doctors
Notification of change of private anaesthetic fees.
Recent tax changes have meant that doctors in a certain income band/bracket are subject to an effective tax rate of 94% on any extra income that they earn (https://twitter.com/BMANWRCC/status/1052112637721542657?s=09).
This means that for a private case - say lasting 2 hours, for which they might charge £500, £470 goes to the taxman. Thus for a 2 hour case, this means the profit is £30 or £15 per hour - around twice the minimum wage. This might explain why MPs like David Davis are charging £60,000 for 20 hours work per year or £3,000 an hour ( https://www.independent.co.uk/news/uk/politics/david-davis-jcb-brexit-jo... ) - as they will be taking home £180 per hour unless they have some accountant who has made clever arrangements to allow him to take home more. Given that David Davis resigned as Brexit secretary and still commands such a fee, it would be reasonable for senior experienced anaesthetic doctors to charge a similar rate when they are capable of delivering a more tangible result - an alive patient at the end of an operation. I am therefore notifying you that from April 6th 2019 my minimum call out private fee to deliver any anaesthetic will be £3000 (multiply by 1.5 for revision knee and revison hip surgery).
Any one spluttering over their cornflakes at the thought of this increase in charges should take a moment to reflect on how they will benefit the country by paying this higher fee. People can bask in the patriotic knowledge that the bulk of their fees - around £2,820 - will contribute to the filling of government coffers and help pay for the NHS, social care and other vital public services, and will also help to pay for bailing out the banks and pay for HS 2.
Competing interests: Over the years I have attended meetings and had lunches/dinners sponsored by a range of pharmaceutical firms and equipment manufacturers.