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Three weeks to find £25 000: the NHS doctors remortgaging to pay punitive pension tax bills

BMJ 2019; 364 doi: (Published 05 March 2019) Cite this as: BMJ 2019;364:l998
  1. Stephen Armstrong, freelance journalist1,
  2. Antony R Goldstone, consultant radiologist and clinical director2
  1. 1London
  2. 2Castle Hill Hospital, Cottingham, East Yorkshire
  1. Correspondence to: S Armstrong stephen.armstrong{at}

Unexpected tax demands are forcing doctors to borrow money, and they are considering cutting hours and retiring—with potentially serious consequences for services. Stephen Armstrong and Antony R Goldstone report

Continuing uncertainty over recent pension tax changes may mean senior doctors opting out of the NHS pension scheme, reducing their hours worked, or seeking early retirement, as The BMJ reported in January.1

These fears compound findings from a freedom of information request by the Health Service Journal last year.2 It discovered that 245 561 staff had opted out of the NHS pension scheme in the past three years: about 16% of the scheme’s working members, says the pensions firm Royal London.3

Andrea Sproates, head of the independent financial advisers Chase de Vere Medical, told The BMJ, “We are encountering increasing numbers of doctors opting out of the NHS pension scheme at all ages. These may be older members who are considering retiring early or reducing NHS or private practice hours, or younger members who are considering leaving because of affordability concerns.

“We have also seen doctors taking out loans or even remortgaging to pay pension tax bills. Many of these doctors have been unable to avoid these bills and in some instances didn’t expect them, because the tax liability is often an unknown quantity and so is very difficult to plan for.”

A BMA survey published this year4 found that that six in 10 NHS consultants (2446 of 4089 respondents) intended to retire before or at age 60, while over a third (36%) expected to reduce the days they work in the NHS by as much as half—and pension rules were the second biggest reason.

Unexpected £25 000 bill

Since the recent 31 January 2019 deadline for 2017-18 income tax The BMJ has spoken to senior NHS doctors and found many similar stories. One intensive care doctor in a major hospital in northern England had an unexpected £25 000 bill last year and had to find the money in three weeks.

“Even doctors who earn well aren’t going to have that sort of money available,” he told The BMJ. “If you get a bill from HMRC for £25 000 your options are that you pay it, or you pay it. You either find or borrow the money.

“I managed to borrow some from my family last year, and the NHS pension scheme has paid my £25 000 on account for me—but, for that, it will take the money off my lifetime allowance [of pension income] and charge me interest until I’m 60. If the hits keep coming I will have to remortgage.”

Changes to pension rules affect high earning doctors

The increased pension pressure is caused by changes to regulations in 2016 that reduce pension tax relief for some higher earners.

You pay tax on any growth of the deemed value of your pension over your tax-free annual allowance of £40 000. The change means that, for every £2 of “adjusted income” over £150 000, your annual allowance is “tapered down” by £1, to a minimum of £10 000.

Your adjusted income is, broadly, your “threshold income” (essentially, taxable income from all sources) plus any deemed pension growth, as stated on your pension savings statement.

In practice, most doctors with a taxable income of £160 000-£170 000 face full tapering of their tax-free allowance if they remain in the NHS pension.

An HMRC spokesperson tells The BMJ, “The annual allowance (AA) taper only affects higher earning pension savers. The AA charge helps control the cost of pensions tax relief by claiming back the relief received on contributions made in excess of the AA limit. This ensures that the benefit these individuals receive is not disproportionate to that of other pension savers.”

Oversimplification and complications

But this is an oversimplification with potentially huge financial effects, some doctors think. You can “carry forward” unused allowance from the past three years but, generally, once you have used your carry forward it is gone forever, and you can expect an annual allowance charge every year.

One GP partner in Yorkshire explains, “I have been in the NHS pension scheme since I qualified in August 1988. I was aware of the huge decrease to the allowed lifetime allowance and annual allowances since they were introduced in the late 2000s. I always avoided extra tax on the annual allowance, as the option to carry forward any unused allowance protected me.

“When tapering came into effect in 2016-17 I mistakenly felt it wouldn’t affect me, as my annual salary was always, and indeed continues to be, lower than the adjusted income cut-off of £150 000—but my pension growth took me over.”

The GP’s accountant thinks that, for 2017-18 and 2018-19, he is likely to have to pay an extra £15 000-£20 000 each year in pension growth tax.

“To further complicate matters, my accountant won’t know the figure for 2017-18 until approximately October 2019, and for 2018-19 the figures won’t be available until October 2020,” he adds. Capita often sends GPs pension savings statements for the tax year after the deadline for “scheme pays”—essentially, a high interest loan that reduces your pension. If this happens GPs have to estimate their pension growth, which is complex, and they risk fines and interest from HMRC if they get it wrong.

Penalised for success

A full time GP partner in a Yorkshire town in her mid-40s had a pensionable income last year of £161 000. As a GP partner she is self employed and therefore has to pay the employer and employee contributions, totalling £56 000.

This year her initial tax bill was estimated at £36 000, but her accountant advised paying £72 000 that month: this comprised a £10 000 emergency payment for possible breaches in previous years; the total that she had breached last year; and an increase in her overall tax prediction. She has a payment on account of £38 000 due in July, meaning that she will pay £110 000 tax in this calendar year.

“I have worked consistently in that successful partnership for 15 years, and one of the key reasons for our success has been our consistent team and full time clinical leads,” she explains. “It angers me that I am now being penalised through the pension tax system for delivery of such care.

“I want to continue working full time, and I’m happy to pay my fair tax, but I’m worried about the personal effect that will have. We don’t plan to reduce our work commitments, so the chances are that we will withdraw from the NHS pension scheme.”

Betrayed by initial promises

Doctors feel betrayed by the promises they were given when starting out. One 48 year old surgeon in Wales recalls, “The deal when we started as junior doctors was: you work like crazy, have no social life and don’t earn that much—but later in life you have the NHS pension.

“I remember a financial adviser coming to us in our first six months and saying, ‘Think about endowments or pensions, but do not come out of your NHS pension—it’s one of the best there is.’ They’re basically reneging on that deal.”

One oncology consultant in his mid-40s from Yorkshire, who does not do any private practice, was recently promoted to clinical director and saw his pensionable income rise by £10 000 this year to a taxable income of £111 640 in 2017-18.

He had already submitted his tax return, which, together with less than £1000 income from elsewhere, would have resulted in a small tax refund from HMRC after professional subscriptions and so on. When a colleague received an unexpected tax bill the consultant realised that he too could be affected. After speaking with his accountant he has a £40 000 annual allowance bill: that is, he has to pay £40 000 from his taxed income.

Because he has used his “carry forward” he is expecting an annual allowance bill every year until he retires. Next year’s bill won’t be as huge, but the year after that (because he will have a pay rise from an increment) he will get another five figure bill. For consultants, pay rise years are now something to dread rather than a symbol of reward for their seniority.

There is another point to consider here. This consultant was only £1640 over the “tax cliff” of the threshold income limit of £110 000. Had his income been just £1641 lower his annual allowance bill would have been £13 500 smaller.

“I’m trying to come to terms with having paid a five figure bill for the past couple of years to be clinical director,” he explains. This highlights a major disincentive for clinicians to take on additional roles or paid work (even if non-pensionable) that push them over this “tax cliff.” Having taken professional advice, and not wishing to use the “scheme pays” loan for a role he is unlikely to have until retirement, he has had to remortgage his house to pay the charge.

Pushing for reform

The BMA is pushing for reform of pension taxation, although it has not yet provided details of what it is asking for.

“Taxing anyone on pension scheme growth that they have little or no control over is grossly unfair,” says Sproates of Chase de Vere Medical—“especially as the tax is due now and yet the benefit may not be received for many years.”

She warns doctors against leaving the NHS pension scheme without a thorough understanding of what they will gain and lose. It is a rare final or average salary pension that includes death in service benefits and enhanced benefits on the grounds of ill health.

“The first step is to be aware of any potential tax liability and then make an informed decision,” she suggests.


  • Competing interests: We have read and understood BMJ policy on declaration of interests and declare the following interests: SA has no relevant interests to declare. ARG advises the BMA on pensions related matters.

  • Provenance and peer review: Commissioned; not externally peer reviewed.


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