Medics’ pension problems undermine the NHS
The latest ill-advised tweak to the taxation of doctors’ pensions has had consequences far wider and far more tragic than Treasury ministers could have feared, writes Andy Keates.
In October, I wrote about the government’s consultation on doctors’ pensions. Since then, matters appear to have got far worse.
Changes to the pensions legislation in 2016 mean that high earners (those earning in excess of £210,000 a year) face an annual allowance charge if the value of their pension rights grows by more than £10,000 in a given tax year.
In the NHS in particular, this has impacted on senior consultants and GPs, with the result that many have chosen to reduce the amount of work they do for the NHS or take early retirement.
A major issue lies with NHS Business Services Authority (NHSBSA), the body responsible for providing doctors with the information they need to enable them to plan for their tax liabilities and pension income.
Increasingly, NHSBSA is failing to provide the necessary information on a timely basis. The Financial Times reports that NHSBSA missed its three-month deadline for providing pension statements on around 4,000 occasions this year. This is about 25% of all requests!
At least part of the problem has arisen from the sharp increase in doctors seeking a pension report. In the first nine months of 2019, some 15,200 pension statement requests were made by hospital consultants, compared with 5,473 such requests in 2018.
However, as a representative of the British Medical Association points out, the NHSBSA is “woefully under-resourced and unable to cope under the current arrangements”.
Surgeons cut hours
The Royal College of Surgeons (RCS) in England commissioned a survey of its members last month and the results are alarming. As a direct result of the pension changes, consultant surgeons are:
- considering early retirement (68%); and,
- reducing the hours they work for the NHS (69%).
The impacts are likely to be felt in NHS waiting lists for surgery, which in England currently stand at 4.41m. Traditionally, backlogs have been tackled by surgeons working additional hours at weekends. However, of those consultant surgeons who took on such initiatives last year, 68% have said they will not do so again this year.
The fear, as expressed by an RCS council member, is that “accepting an extra shift can lead to a large and entirely unpredictable tax bill landing in the post many months later”.
Worryingly, early retirement among senior staff could lead to difficulties in training new surgeons.
“Surgical training is built on an apprenticeship model, with trainees learning their skills from more experienced, senior surgeons. If those surgeons leave the NHS early, who will train the surgeons of the future?” asks RCS President Derek Alderson.
Managing public money?
The government’s consultation on this issue seems unlikely to result in any meaningful actions in time for the current tax year. This is doubly so as a result of the postponement of the annual Budget Statement and the upcoming general election.
The CEO of the NHS, Simon Stevens, has written to the Health Secretary Matt Hancock, referencing a deal which the NHS and the Treasury have been considering to provide some mitigation of the problem for 2019/2020.
For certain clinical staff, their pension rights have been eroded by settling annual allowance charges using the existing “scheme pays” facility. The suggestion is that separate payments could be made by NHS to restore the value of those pension rights.
The issue here is that prima facie, this is in direct conflict with the Treasury document: Managing Public Money paragraph 5.6.1, which states that public sector organisations “should not engage in, or connive at, tax evasion, tax avoidance or tax planning”.
Stevens asks the Health Secretary to “give a formal written direction… confirming that on an exceptional basis for 2019/20, paragraph 5.6.1… should not apply”.
In his reply, Hancock gives that direction: “taking into account the wider public interest which I am able to bring to bear… [recognising the importance of] the NHS and… its performance over winter, and recognising the unique circumstances within the NHS and necessity of this intervention to address operational capacity at this time”.
Meanwhile, in Scotland…
Health Secretary Jeane Freeman MSP has announced interim measures for NHS Scotland to address the issue of retaining highly experienced staff.
Staff who can show they are likely to face an annual allowance charge in 2019/2020 will from 1 December 2019 be able to withdraw from the NHS pension scheme for the year and receive what would have been their employer contributions as an increase in basic pay. This will be subject to PAYE and NIC.
Freeman points out that this temporary policy will require no additional funding, as it merely redirects existing expenditure.
The tax treatment of private pensions has been a fiscal football since 2004. Virtually every Finance Act since then has contained tweaks and meddling with the system (usually to save the Exchequer a few pounds).
Tragically, most of the amendments have themselves subsequently needed to be amended owing to unforeseen (although hardly unforeseeable) consequences.
It seems that the latest ill-advised tweak has had consequences far wider and far more tragic than Treasury ministers could have feared.
This particular problem is not going to go away, and it is to be hoped that after the general election politicians can tear their attention away from Brexit for long enough to apply more than a mere sticking plaster to the doctors’ pension problem.