Following representations from a number of bodies, and as a result of a steep increase in waiting list times, the government has announced that it plans to review the pension rules which are causing a crisis in the NHS, just weeks after ruling out any discussions.

Many consultants have been reducing their hours or taking early retirement because of the punitive tax liabilities which can be incurred in certain circumstances.  This unwelcome increase in tax was as a result of changes to general pension rules, leading to an unforseen impact on senior members of the NHS.

This has caused waiting lists to surge by up to 50% and delays are increasing in all other areas.

Current rules:

As it stands the government gives tax relief on contributions to pension schemes and allows up to 25% of the benefits to be taken tax-free at retirement.

Since 2006, there have been annual contribution limits and lifetime contribution limits, which have continued to reduce over time. The limit on the annual allowance has come down from £255,000 a year in 2010-11, to £40,000 a year.

If the growth in a doctor’s pension scheme exceeds this annual allowance they face a charge, or a reduction in their pension benefits. Due to the complex nature of the NHS pension fund, the grant of an annual salary increase is a factor in determining the annual pension fund growth.

In addition, a tapered annual allowance was introduced in 2016 which sees the annual allowance shrink from £40,000 to as low as £10,000 a year for those with “adjusted” incomes of £150,000- £210,000.  These adjustable earnings include taxable earnings from salary, rental income and dividends.

Because of this, many consultants will face a significant tax bill even if their earnings are only just above £110,000 a year.

The changes: 

The government is proposing a plan to allow doctors complete flexibility when it comes to scaling down their pension contributions so that they can avoid breaching the tax-free allowance.  A consultation will be published in the coming weeks.

The treasury has also agreed to look at how public sector workers are taxed on their pensions so changes could be happening with other professions as well.

We will publish a new update once this consultation is finalised.

We strongly advise you to seek appropriate advice before taking action on any of the points listed above.
All information contained in this document are correct at the time of writing.  Legislation and regulations may change at any time.
If you are in any doubt, please call us for clarification.
About us:  Leggate Associates Limited was formed by Andrew Leggate LL.B FCMA FCA CGMA who has over 35 years of tax and accountancy experience in industry and practice, and the practice is managed by Joanne Leggate FMAAT ATT.  Our clients range from building subcontractors to multi-million pound concerns and high net worth individuals all over the UK.  Please see our website  or follow @LeggateAssoc on Twitter for occasional updates.
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