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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.

29th Nov 2019
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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.

Clogged arteries

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”.

Long-term prognosis

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.

Replies (9)

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02nd Dec 2019 11:23

I know many NHS consultants, and fear that the picture is worse than painted. The NHS has existed for many years on "goodwill" from employees doing more than they are paid for. Now they are taxed viciously on their goodwill, there is no motivation for their altruism, and we are facing a perfect storm of 1) Declining to do extra non-contractual sessions to maintain unrealistic political (waiting list) targets; 2) Early retirement as soon as full pension life-time entitlement achieved; private practice much more relaxed and easily as lucrative for most, together with losing micro-management by NHS managers who are usually less qualified to know what patients actually need and just create stress (some for salaries that dwarf the Prime Minister's!); and the current NHS Elephant in the Room: 3) BREXIT making our country appear unwelcoming to EU (and non-EU!) personnel leaving us with 1 in 10 doctors posts unfilled and 1 in 8 nursing and midwifery posts vacant. Well done!!!

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By tonyaustin
02nd Dec 2019 12:50

I am sure that tax may be a factor but people generally retire when they can afford to do something else they want to do, unless, of course, forced to because of health or other factors beyond their control. Many carry on working because they cannot afford to retire, having to rely on a defined contribution pension.

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Replying to tonyaustin:
By Rgab1947
02nd Dec 2019 14:37

Doubt a surgeon works because he cannot afford to retire.

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By supremetwo
02nd Dec 2019 12:55

Surely it's the pension rules that need to be changed?

Once you have reached the limit, no further contributions are allowed either from the employer or the employee.

The country may be able to afford £210k salaries for the medics but not a high salary and a ceiling-less pension, especially with increasing longevity.

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Replying to supremetwo:
By vstrad
02nd Dec 2019 13:06

Quite. Given there is a lifetime allowance, why do we need an annual allowance as well?

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By snigglesnaggle
02nd Dec 2019 13:57

All this constant tweaking and revision of rules and allowances makes it impossible to plan pension provision over a lifetime.
Income is not linear for almost anyone, so stability in the rules is essential.
Society needs individuals to take more of the burden from the state, but the state's constant fiddling with the rulebook makes it hazardous to plan more than a couple of years in advance

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By dgilmour51
02nd Dec 2019 16:40

Ministers are there to make decisions on the basis of advisement from the highly skilled and astute Civil Service, of which HMRC is a branch, following the guidelines carefully set out in the manifesto of the imcumbent government.
Ministers are not there to particularly deal with the minutiae of process - though many of them seem forget that to some degree.
I have no doubt that the current pensions imbroglio was sold to the then Chancellor by the far-sighted and commercially aware HMRC on the basis of their vast experience of enabling simple tax changes.
What really bothers me is that 'nothing is done' when it is seen that such inadvertant outcomes occur.
And whilst the 'public face' of this disaster shineth forth from the NHS, the NHS is by no means the only place of suffering.

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Replying to dgilmour51:
By rbw
02nd Dec 2019 17:33

dgilmour51 wrote:

I have no doubt that the current pensions imbroglio was sold to the then Chancellor by the far-sighted and commercially aware HMRC on the basis of their vast experience of enabling simple tax changes.

As usual I note HM Treasury escapes mention despite being responsible for tax policy.

I note also no mention of special advisers and Ministers who demand options for Budget announcements "getting tough on fat-cat pensions" in response to the political pressure from the Opposition and others who point to the size of pension pots and the unfairness (as they see it) of tax reliefs which benefit the rich more than the poor.

And successive governments have looked for HMRC's and other civil servants to be more businesslike - including "don't bring me problems, bring me solutions".
Each year I wonder if the Budget Statement will include simplification of Pi to help businesses and schools.

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By mkowl
03rd Dec 2019 10:40

I surely can't be the only person watching this election campaign and lamenting the lack of joined up thinking, the long term planning, the lack of grasping what the unintended consequences could be. This being a classic example

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