Pensions: From forgotten Budget to post-Covid realities

Pensions lead Dr Sarah Tennant surveys developments since an important Budget in March whose content was rapidly overshadowed by Covid-19.

The Budget on 11th March seems a very long time ago. Within a matter of days the Covid crisis had taken over, giving hospital doctors little chance to absorb the Chancellor’s speech.

It was significant. After months of lobbying to “scrap the Taper” amid dire evidence of the impact on NHS services, Rishi Sunak bowed to pressure and increased the threshold income – the point at which the tax relief taper comes into play – to £200,000.

Yet any sense of (partial) victory was short-lived. As the public stockpiled toilet roll and pasta, doctors joined their non-medical colleagues in preparing for the first wave of Covid patients.

However, pensions issues have not gone away. Some have become more pressing.
While the Budget announcement means that the taper is no longer a concern for most hospital doctors, NHS pension growth remains difficult to predict.

Many will continue to receive tax bills for breaching the standard annual allowance of £40,000.

Most Consultants will require independent financial advice and accountancy on an ongoing basis – a substantial cost from post-tax income.

In the Budget the Chancellor also dismissed previously touted flexibilities which, while complex, would have allowed hospital doctors to regulate their pension contributions, helping to avoid the issues which have driven some to leave the NHS Pension scheme or do the “hokey-cokey” of leaving and rejoining.

The problems with exiting the scheme have been underlined by Covid. In March, HCSA wrote to the Health Secretary to urge the extension of death-in-service benefits to doctors not in the NHS Pension Scheme, including those who felt forced to leave due to punitive taxes.

In late April, as the death toll among NHS and social care staff mounted, the Health Secretary announced a Covid life assurance scheme in England offering a single payment of £60,000. Full details were finally published after a delay of several weeks , alongside the list of caveats governing payouts. Given its limited nature, HCSA members not currently covered elsewhere may want to obtain financial advice on the best way to provide for their loved ones should the unthinkable happen.

For those who are still paying into their NHS pension, however, scheme pays is one way of settling tax bills. But it is effectively a loan against future retirement benefits, which means that younger members in particular should be cautious.

The government’s vow to “fully compensate” those who use scheme pays for the 2019/20 tax year remains in place, while those considering the facility for 2018/19 now have longer to make up their mind – the deadline has been extended from 31st July to 31st October due to Covid.

There are further longstanding problems which remain unresolved.

The lifetime allowance, which rose to £1.073 million this year, remains a significant factor driving early retirement. Several employers had agreed to pay cash in lieu of their contribution to those leaving the NHS pension scheme due to pension tax issues. However, the Budget dashed hopes of a national agreement. It remains a postcode lottery.

We also await updates regarding the NHS pension scheme itself, both in the wake of the successful age discrimination case around judges’ and firefighters’ pensions and a fresh court case filed in April by unions challenging delays to adjustments. The outcome of the latter could mean higher benefits or lower contributions for those paying into public-sector schemes.

Shortly before the lockdown, the government indicated that its remedy to the age discrimination ruling could mean NHS pension scheme members, including those forced to transfer into the 2015 scheme, would be offered a choice as to whether they accrued service under the legacy (1995/2008) or new (2015) scheme. We await further news.

While the focus on Covid means these issues have disappeared from view temporarily, they have not gone away. What’s more, when the current emergency does recede the economic price tag will undoubtedly mean more changes to taxes and reliefs.

The next Budget is likely to be as significant for hospital doctors as the last.