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Feature Pensions

Cuts to pension tax relief deepen retention crisis for senior doctors

BMJ 2019; 364 doi: (Published 17 January 2019) Cite this as: BMJ 2019;364:l206

This article has a correction. Please see:

  1. Stephen Armstrong, freelance journalist, London, UK
  1. stephen.armstrong{at}

Pensions feature prominently in the decision to retire early for many doctors, a new BMA survey has shown. Stephen Armstrong explains the problem

A survey published last week by the British Medical Association shows that six out of 10 consultant doctors (2446 out of 4089 respondents) are intending to retire from the NHS before or at the age of 60. The second biggest factor for this decision, after work-life balance, is current pension legislation. The survey also found that more than a third (36%) of consultants were expecting to reduce the number of days they work in the NHS by up to half (fig 1). More than 40% said they have or will stop taking part in initiatives to reduce waiting lists.1

Fig 1
Fig 1

Consultants’ responses to BMA survey, based on 4089 replies1

“There aren’t enough doctors in any specialism as it is,” argues Rob Harwood, chair of the BMA consultants committee and a consultant anaesthetist. “We expect that in 15 years’ time we’ll have 25% too few anaesthetists, and having spoken to other colleges I think that’s about average [for all specialties]—no one is saying they have enough people. Consultants are the most experienced members of a team—the most experienced, most efficient, and most cost effective.”

Huge tax bills

The new pension pressure on senior doctors identified by the BMA has been caused by a recent change to pension regulations that means many consultants are receiving huge tax bills and that these increase significantly if they work harder.

“Pension legislation has been changing—and deteriorating—for higher earners for years,” explains Andrea Sproates, head of Chase de Vere Medical, one of the UK’s largest independent financial advisers. “Previously only a doctor’s NHS pensionable income mattered. Now we have to look at every piece of taxable income—NHS work, private work, dividends, rental income, earnings; all combine with salary to determine income. We’re also seeing the effects of tapering on annual allowances introduced in 2017. So many people who don’t understand it get caught unawares.”

The problem is caused by changes to the annual allowance, a threshold which restricts the amount of pension growth people are allowed each year before tax charges apply.2 When pension growth exceeds the allowance threshold the charge is intended to recover tax relief on pension contributions.

When it was first introduced in April 2006 the annual allowance was set at £215 000 (€240 000; $280 000), increasing each year until 2010-11, when the government sharply reduced the threshold from £255 000 to £50 000 (fig 2). The following year, it was reduced further to £40 000 and, in 2016, tapering for high earners was introduced. This means the allowance threshold falls the more you earn.3

Fig 2
Fig 2

Changes to the annual allowance for pensions

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.

Public sector disadvantage

In theory, this allowance applies to all pensions in the UK. In practice, the two main types of pensions—defined benefit and defined contribution—experience this threshold differently. Defined contribution pension schemes invest individual members’ contributions, as well as their employers’, in different investments without guaranteeing a final level of pension income.4 Defined benefit pensions—sometimes final salary schemes, sometimes career average revalued earnings—pay a pension based on the member’s earnings and the length of membership.4 The BMA estimates that 90% of defined benefit schemes are in the public sector, although freedom of information requests to HRMC have produced no response.

With defined contribution pension schemes, pension growth comes from the employee, employer, and tax relief as well as growth in the investments selected. With defined benefit pensions, the employee’s pension grows through employee and employer contributions only. In the NHS, this is typically 14% of a doctor’s salary—and the employee has no option to reduce pension contributions without quitting the scheme.

“Generally speaking doctors qualify then work their whole career in the NHS and are members of the NHS pension scheme,” Harwood explains. “As it is a defined benefit scheme, coupled with their long service, their earnings in many cases put them in the danger zone. We estimate that any doctor earning over £70 000 with protected benefits is likely to be affected, although the whole process is so obscure and complicated that it’s hard to get a full picture.”

According to figures from the NHS, from 1 October 2018, consultants working in the NHS earn a basic salary between £77 913 and £105 042 a year depending on the length of service.5 The GMC counted 72 024 specialists or consultants working in the NHS in 2017, alongside 59 068 GPs and almost 60 000 trainee doctors.6

One political lobbyist for the NHS recalled a 2015 meeting where a senior figure told him: “If you want to catch a lot of people in a tax trap you make it more complex. If you want to catch even more, make it more complex still.”

The BMJ spoke to three hospital consultants who had been caught unawares by the complexity of this tax, although they preferred not to be identified. One received an unexpected tax bill of nearly £100 000 and has since left the NHS to focus on private practice. The others both had bills of £30 000 or more arriving out of the blue. “The problem is,” said one, “If I take on more work to pay off this bill, that increases my income and so reduces my allowance further, landing me with a larger tax bill. I don’t have that kind of money, so I am going to have to borrow £20 000 to meet this year’s bill. It’s a trap.”

“Doctors are uniquely placed,” says Doug Mullen, senior associate at solicitors Anthony Collins. “They would be off their chump if they started taking on extra work, so I’m not surprised the fallout of these taxes is demotivation.”

Perverse incentives

“Such a situation is clearly untenable,” Harwood argues. “During a deepening workforce crisis, the NHS needs its most experienced and expert doctors more than ever. I struggle to understand how the health secretary can talk about increasing productivity in hospital care while allowing the NHS to be a system which perversely encourages its most experienced doctors to do less work and, in some cases, to leave when they do not want to. This is happening against the backdrop of the derisory new pay settlement for consultants in England—an average weekly uplift of just £6.10 after tax—when they have lost over 24% of take home pay in the past decade.”

In August 2018, Chase de Vere Medical said it had noted a “significant increase” in the number of doctors either stopping contributions into the NHS pension scheme or retiring early.7 The pension tax arrangements are also driving GPs out of the NHS, according to the Royal College of GPs (RCGP). “We are desperately short of GPs across the country, and we need to explore all possible options to retain our hard working and experienced workforce,” says Helen Stokes-Lampard, chair of the RCGP. “Measures to keep GPs in the workforce longer, including removing incentives to retire early for GPs would both be sensible places to start.”

In August 2018 and again last week, the BMA raised its concerns directly with the government, warning that reductions in tax relief would lead to doctors facing additional tax charges of tens of thousands of pounds. The BMA has also written to Matt Hancock, England’s health secretary, to offer solutions and ask for a reconsideration of the annual allowance and a guarantee that doctors who leave the pension scheme can have their employer’s allowance paid into a private scheme.

To date, the association has received no answer, although Hancock said in an interview last week that he was considering offering GPs more generous pensions in a bid to stop them leaving the health service early.8 “The biggest concern I have raised with me is around the tax treatment of pensions,” he told GP magazine Pulse. “I’ve had conversations with the chancellor about looking at the details of tax treatment of pensions because I understand the impact that that has.”



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