NHS England's latest pension 'quick fix' falls far short of a solution

Some HCSA members will already have received notification from their Trust of yet another measure aimed at reducing the impact of pensions tax and the taper on front-line care. If you have not already, you will undoubtedly soon do so.

You may even have heard the “fake news” from Secretary of State Matt Hancock who claimed that the tax taper had been scrapped for NHS staff.

In fact the latest employer attempt to unblock the gridlock caused by the impact of pensions tax on hospital doctors is a kind of “cashback” scheme, whereby anyone who incurs a tax bill by breaching their annual allowance in 2019-20, and who activates the existing “scheme pays” facility to pay the bill from their pension pot, will get some form of income in their retirement to repay the charge.

This announcement reflects the belated realisation among policy-makers that the NHS pension crisis is real and serious, but it also serves to introduce greater complexity for the many doctors already struggling to navigate the retirement tax maze.

While it could mitigate some of the impact for those affected in the 2019-20 tax year – and for this tax year alone - HCSA has a series of concerns over the plan, concerns which are not eased by the fact that it has been rushed out with scant detail, accompanied by promises of a “contractually binding commitment” but with no contract yet produced.

We set out some specific issues below. But fundamentally we do not believe that introducing another layer of complexity and bureaucracy for both employers and hospital doctors is the right way forward to actually change behaviour. It represents yet another misunderstanding of the factors at play and the urgency of reforming the system at its roots, which lie firmly with the Treasury.

Perhaps it is, as some suggest, the latest cynical attempt to pivot the blame for this disastrous mess, in the face of a difficult winter, onto the hospital doctors who have been caught in the pensions tax trap. This would be a huge insult to the many thousands of us who have repeatedly pulled together at this time of year to deliver overstretched services – just as we will again in coming months.

Perhaps it is blatant electioneering.

Either way, those promoting this new scheme are effectively cajoling doctors to take a leap of faith on the basis of a contract which is promised but yet to be seen, based on a policy of an “IOU” which will be reliant on the government of the day. It comes as cold comfort for those who have already opted out of the NHS Pension, many of whom are struggling to get the employer contribution "recycled", or those who have been forced to remortgage their house because of previous years’ tax bills.

For those who unavoidably incur a breach of annual allowance, this could be a reasonable option, but it is likely to take more than promises of jam tomorrow to win over the thousands of doctors who have already dropped sessions and renegotiated their job plans to avoid triggering tax bills and ending up paying to work.

Attempting to stay within tax thresholds represents the simplest method of trying to avoid being caught in the tax trap. So the elephant in the room remains pension tax allowances and the tax taper. The Treasury’s own “tax avoidance” – its failure to commit to clear reform – is creating a farcical landscape which is becoming littered with ever more complex workarounds.

This latest cunning plan prompted the Secretary of State to announce triumphantly via social media that the government was “scrapping the taper tax in the NHS - immediately - so staff aren’t penalised for working overtime.”

Clearly, while such a move would indeed be welcome, the measure announced does not “scrap the taper”.

Fundamentally this has all the hallmarks of yet another desperate, on the hoof policy, coming only a few months after the last time we were told the problem was solved. HCSA was vocal then about our belief that greater pension flexibilities would not solve the issue and warned in the summer of an impending winter crisis. We are equally confident that this scrambled fix will also fail.

Hospital doctors are in a position of huge responsibility, and for many the pensions tax issue is creating an unwarranted additional emotional and physical burden and driving high stress.

HCSA is clear that this whole situation with pensions has blown up due to medical staffing pressures which have long been rising. Pensions have become a tipping point that have caused many to reassess the long hours they work.

Welcome pledges on GPs and nurse numbers aside, we have heard nothing yet in this election campaign about filling the yawning gaps in hospital doctor rotas.

That few others yet acknowledge the issues at play here is an indictment of the shortsighted workforce policy currently being promoted for the NHS.

It is long past time for policy-makers to raise their hands and acknowledge the Treasury have got it wrong, and to address the tax system issues which have exposed underlying systemic staff shortages.

Dr Claudia Paoloni
President, HCSA


What is the scheme?

In brief, the latest incentive is a short-term, doctor-only “tax avoidance” measure which only applies to tax bills relating to 2019-20.

It will mean that NHS Pension scheme members who incur tax charges because annual pensions growth in their NHS Pension breaches their annual allowance will, for one year only, be able to use the existing “scheme pays” facility and have a compensatory amount paid back after retirement as income to reflect the reduction in their pension.

You can read latest details on NHS England’s “Action on 2019/20 pension tax impacts” pages, which answer some questions but also at the time of writing have some important omissions, not least the full details of the contractual terms under which the scheme will be offered, its potential impact on the value of the 25 per cent tax free lump sum, and the prospects for those on the 1995 Pension Scheme whose lump sum payments reduce when scheme pays is used.


What are HCSA's concerns?

We welcome the acknowledgment of the gravity of the current situation reflected in this proposal, but HCSA nevertheless has a series of concerns with the detail at this time:

  • There is no sign yet of the precise “contract” at the heart of this retirement cashback scheme – therefore hospital doctors are being asked to commit to unknown terms (the most certain way of avoiding a bill remains for many to stay beneath annual allowance tax thresholds)
  • It is not clear how this long-term “retirement income” is to be guaranteed without the risk of future governments reneging on the promise
  • There is an acknowledgement that it represents the promotion by a public body of “tax avoidance” and we are concerned that this may provide a pretext for undermining the pledge by a future government
  • There is no indication how those in the 1995 scheme who face a reduced lump sum if they use “scheme pays” will be compensated - the plan talks purely of a regular payment in retirement
  • There is no information about the consequences of this scheme on the value of the 25% tax-free lump sum accessible on retirement
  • The scheme relies on the individual to activate it manually by July 2021 and inform HMRC – inevitably some hospital doctors will miss out
  • It is strictly time limited in scope – it will only apply to the 2019-20 tax year
  • The funding appears to be drawn from existing NHS budgets, when the responsibility for these issues lies with the Treasury