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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Dear Editor
The NHS is moving away from an era of managerialism towards clinical leadership. It now widely recognised that close working between managers and clinical leaders is the most effective arrangement to improve the performance and quality of NHS organisations.
In order to effectively make the jump from consultant to leadership roles, clinicians are rightly advised to take on leadership training. The NHS Leadership Academy provides excellent training through degree courses, which is done as additional work to the day job, i.e. outside of work hours and at the cost of family and social activity. In the future, clinical leadership roles would only be offered to clinicians who have undertaken relevant training - in order to ensure they are effective.
The work pressures in the NHS are such that clinical colleagues often take on these leadership roles on top of their clinical roles, again at cost to themselves and their families.
The current perverse and overly complex pension rules are acting as a significant disincentive to those wishing to lead and make a difference in this way. Why would you take on the burden of further training to be an effective leader if you are going to find yourself with an unexpected large tax bill related to the pensions allowance? If it were possible to adjust pension contributions so that the tax allowance was not breached, then that might be enough of a move to remove this disincentive; however this is not possible and the system means that doctors do not know they are going to breach until it is too late.
For those already in leadership roles, the options are to pay large sums for accountants to decipher the situation, and then either remove themselves from NHS pensions, or step down and thus remove the benefits to the NHS of the experience and training they have sweated to gain.
Clearly the system needs changing, and changing quickly.
Competing interests: I am personally affected by the current pension rules
The cartoon accompanying the article is striking but would be more so if the tear in the £50 note was in the right place. Depending how it is calculated (see earlier responses) the tax take secondary to tapering is at least 67.5% rather than 30%.
Slogging away only to be super-taxed on a virtual annual input uplift in a virtual pension pot in the NHS scheme is very unattractive. You cannot reduce your contributions except by losing the life assurance death-in-service element and deferring benefits and unfunded public sector schemes are likely to be hit still harder when the economic consequences of Brexit really start to bite. Taxation will have to rise and it is not unreasonable to suggest that Mr Hammond or Mr McDonnell could cap public sector pensions at, say £20k p.a. which would not affect more than a small percentage of employees.
Severe shortages in many specialties mean that the locum agencies are offering high rates of pay, another incentive to those hit by the taper or lifetime allowance and considering part-retirement. I doubt that there will be any agreement by the Treasury to waive the taper for doctors as not only the Mail but the public are unlikely to be sympathetic to the "plight" of those of us on track to be able to retire on twice the average wage.
Competing interests: No competing interests
It sounds like this is a good time (Brexit distraction notwithstanding) for doctors to be writing to their MPs about the issue; I will be, and will attach this article. Despite the errors noted in other responses, it does explain the problem quite well, and does the heavy lifting with regard to this not being about a relatively affluent minority group complaining about paying their taxes.
Personally, I can not now currently afford to do any extra work for the NHS services I work for and am thus prevented from ‘doing my bit’ to help fill inevitable rota gaps which appear and which will continue to do so. As an experienced mid-career consultant with years to go prior to intended retirement, this exhaustion of my capacity to contribute is surely good for no-one.
Competing interests: No competing interests
First the government came for the Police (in 2011)(1)(the Police subsequently lost their court case), then they came after the Firemen and Judges (2) in 2018. Now in 2019, the government are coming after the doctors. There appears nothing that will stop this government attacking public sector workers.
1. https://www.theguardian.com/uk/2011/jun/19/police-funding-cuts-counter-t...
2. https://www.ftadviser.com/pensions/2018/12/21/judges-and-firefighters-wi...
Competing interests: I am a personal friend of the policeman I cited in reference 1
Dear Sir-Madam
The pension limit fiasco has created a lot of unitended consequences. Did the Treasury know? Did they care that the end result was the compromise of NHS delivery? Combined with the current unfair tax regime in the UK then there is little point now working hard or aspiring. Why are we paying 100+% tax on some of our earnings? Where is my single person's tax allowance? Why do we pay 94% tax on upper end income. Why do we pay over 300% marginal tax on contractual increments for excellence?
The UK is now a hostile place to practise medicine or to be rewarded for endeavour.
John Miller FRCR FRCP
Lothian
Competing interests: End user of public services now being dismantled without a democratic mandate by stealth
Dear Sir- Madam,
I would echo Goldstone`s comments above. These punitve pension taxes combined with huge real terms pay cuts over a decade within an already unfair taxation system now makes the UK feel very hostile. Never before has such government sponsored disincentivisation been legislated for. There is no escape for public sector staff unlike the private sector who can vary their pension input amount. Even the IR35 avenue has been shut down so NHS bodies cannot get work done. The effects of such a ill thought out policy have not been fully considered. The failure of the public sector is being promoted. The covenant with the people has been broken without any mandate to support the dismantling of the NHS, military, fire services, social work and local government. The illogical narrowing of the tax base and loss of productivity will have disproprotionate effects upon the economy, health and defence of the nation.
I cannot blame my EU colleagues now leaving these islands where industry and effort is no longer rewarded. Those ostrich colleagues still blissfully unaware of this attack on our services and our patients need to educate themselves. Those tax bills and penalties are out there for all in the second half of a medical career.
John Miller FRCR FRCP
Edinburgh UK
Competing interests: Consumer of public services being destroyed by government sabotage
Minor point, but
" we need to explore all possible options to retain our hard working and experienced workforce,” says Helen Stokes-Lampard, chair of the RCGP"
Would "all possible options" include scrapping the Appraisal and Revalidation process that squanders so much of the scarcest resource - our time - and has done so much to help persuade older GPs to leave early?
Competing interests: No competing interests
Dear Editor
Firstly may we congratulate the author and the BMJ for publishing this important paper summarising the recent large survey by the BMA which shows a worrying trend towards senior doctors considering early retirement, part-time working or refusing additional work due to these ill conceived taxes.
However the author has fallen foul to this ridiculously complicated tax. He is in good company. To quote the Financial Times, “Of all the personal finance policies I have seen in my career, the annual allowance taper is the most stupid, the most complicated, the worst thought out and the most likely to alienate the layer of workers we increasingly rely on” [1]. Indeed the tax is so complicated, even HMRC’s online Annual Allowance calculator was reported to be giving incorrect information [2].
There are a number of serious errors in the article which may cause confusion and which warrant correction.
Firstly in general the use of the word “threshold” in the article which may be confused with “threshold income” which has a tight definition beyond the scope of this response.
Secondly it is incorrect to state “For every £2 of income they have over £110 000, their annual allowance is reduced by £1“. £110,000 is the so-called “threshold income” at which point tapering may occur if so-called “adjusted income” is over £150,000. For every £2 of “adjusted income” over £150,000 (and not £110,000 as stated), their annual allowance is reduced by £1 down to a minimum of £10,000.
Thirdly and mostly important is the statement (which is widely misunderstood) “So consultants with an income of £210 000 or more will have an annual allowance of £10 000.”. As above it is "adjusted income" and not "income" over £210,000 which causes maximum tapering. This is a crucially important point, as for most consultants in the new 2015 pension scheme, those with taxable income over £160,000-£170,000 will experience full tapering because "adjusted income" includes a value for deemed pension growth. When deemed pension growth is added to a taxable salary of around £160-170k, it frequently produces an adjusted income over £210,000.
The profound effect of “annual allowance tapering” was highlighted in the evidence submitted by NHS Employers in their submission this week to the 2019/20 round of the Pay Review Body [3]
They stated "The review body noted that “for gross salaries between £118,000 and £170,000, take home pay increases by less than £3,000. Marginal tax rates above 100 per cent are experienced between £118,800 and £122,600, although this calculation does not factor in increases to the value of the pension. Such high marginal tax rates mean it could be rational for an individual to seek to work part-time rather than work full-time. This may result in a need to recruit more post-holders or to deny requests to work reduced hours, impacting negatively on motivation. We endorse that observation."
Unfortunately we are already starting to see the adverse effects of this is our hospitals with consultants seeking early retirement due to taxation and others turning down additional work due to punitive taxation (as noted by NHS Employers above, there is a £52,000 band income between £118,000 and £170,000 whereby marginal tax rates exceed a staggering 94%).
It is however of some comfort that this issue is not only recognised by the medical unions including the BMA and HCSA, but also by employers bodies including NHS Providers and NHS Employers, and indeed there are reports the Health Minister is in discussion with the Treasury to find solutions to this absurd and ill conceived tax. As evidenced by the errors above, this is staggeringly complicated. We have spoken to a number of IFAs and accountants who openly admit to not fully understanding it. For our part we have written a guide and open source pension model for consultants to help them understand the value of their pension and various taxes which will reduce it or make it more expensive [4]. Unfortunately the complexity of annual allowance and tapering makes this now out of the scope of self assessment for the vast majority, and professional advice is advised for almost all.
Annual allowance and pensions tapering simply do not make sense in the context of defined benefit pension schemes, and this needs to change. This imprudent tax has the ability to topple an already fragile NHS, and we hope the medical unions can work effectively together with employer representatives and the Treasury to find a much needed solution to this significant problem.
Yours sincerely,
Dr. AR Goldstone & Dr. OR Byass
[1] https://www.ft.com/content/d17d0c32-0007-11e7-8d8e-a5e3738f9ae4
[2] https://www.ft.com/content/f1b03fda-42e9-11e8-93cf-67ac3a6482fd
[3] https://www.nhsemployers.org/-/media/Employers/Documents/Pay-and-reward/...
[4] https://goo.gl/4heFjd
Competing interests: No competing interests
Re: Cuts to pension tax relief deepen retention crisis for senior doctors
As a doctor qualifying in 1992, after 6 years of medical school, I entered into a contract with my employers, the NHS. Like many others I worked 100+ hour weeks as a junior doctor. I worked 1 in 3 on-calls, lost count of the number of birthdays, weddings, and other events I missed. I moved jobs every 6 months to a different post in a different hospital. I gave up a great deal to practice medicine. The contract was that the NHS would look after you in the end, and the NHS pension was held up as an incentive to compensate for the exhausting, emotional, and challenging life as a doctor.
As Sir Steve Webb, former pensions minister said, pensions should be a long-term business, where people can plan with confidence for their retirement, knowing that the tax rules around pension saving will be stable. These changes to the pension, pernicious, complex, and not widely understood by the people that they affect, are nothing short of a betrayal.
Whether the pensions changes, forcing an exodus of the most senior and experienced doctors from the NHS, are a deliberate policy to reduce NHS spend, or simply following the law of unintended consequences to an ill-conceived policy, a solution needs to be urgently found. Thousands of senior doctors, myself included, must now ask ourselves whether we can afford to remain in the NHS pension scheme, or in NHS employment at all. The end of the NHS has been predicted for many years, but the banality of it coming this way is tragic.
Competing interests: affected by these changes both as clinician and consumer