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Pensions & Money

Pension Crisis

It is welcome news that the Government has announced a review of the rules surrounding pension provision. It appears that at long last it is being recognised that penalising skilled professionals such as surgeons for working hard and putting their hard earned savings to work for future pension provision makes no sense. Recent evidence suggests that upto three quarters of GPs and consultants have decided to reduce their hours of work or retire early. Such a loss to the work force is unsustainable.

I understand that the proposals are twofold: firstly, Trusts will be given the discretion to allow consultants to reduce pension contributions and receive the additional money as salary. And secondly, that the taper whereby pension contributions are limited to £40,000 /yr reducing incrementally to £10,000 with an income exceeding £150,000 will be reviewed.

Writing in the Daily Telegraph, Matt Hancock, Health Secretary has stated “the major overhaul” would allow senior doctors in England and Wales to take on NHS and be fairly rewarded for it without the worry of an unexpected tax bill”.

But is this correct ? The reality is that the proposed changes merely scratch the surface of the problem and the continuing exodus of surgeons and other highly skilled professionals is likely to continue

Why such pessimism:

one ongoing problem is that under pension rules , income includes increases in pension value, and doctors must pay tax on this extra “income” even though in many cases it is not money they have actually received

overtime pay and increases in pension pot value both count towards income. If contributions into a pension exceed the annual allowance for higher earners (£10,000) this is taxed at the higher rate of 40%

according to the investment company Tilney a doctor whose salary increased by £10000 to £110000 would be assumed to have increased their pension value by £68,692, and would be liable for a tax demand of £11,476  (see Times 6th August,  2019)

the proposal that doctors (at Trust’s discretion) can reduce pension contributions and have a salary increment instead sounds good but is, to say the least, a little disingenuous.  Pension contributions are usually tax free, and supplemented by the employer (the NHS). In this new proposal additional income from converting money that would have been a pension contribution will be taxed at 40% as with all other earned income.

Further, whatever reduced pension doctors may accumulate will now not be paid in full until age 67yrs. Every year taken early reduces a pension by 5%. To match the pensions of doctors who have recently retired early, doctors in the future retiring at age 60yrs will in effect forfeit 35% pension.

The “lifetime allowance” has been gradually reduced by successive chancellors and now stands at £1.05 million. It is true that only a small minority of workers in the UK will achieve such a sizeable pension pot. Nevertheless, it is a fact that such a pension pot will only pay a modest pension. More importantly, it serves as yet another disincentive to senior clinical staff to increase their earnings knowing that exceeding the life time allowance risks draconian tax penalties.

In all this debate about earnings and pensions few seem to have considered the consequences of senior staff reducing their working commitments. Many will relish the improvement in work life balance and be reticent to return to the treadmill

Whatever the nuances of tax and salary the fact remains that in recent years the medical profession has been disincentivised. The NHS is dominated by a managerial system obsessed with throughput, not quality. Doctors, particularly surgeons, work in a climate of fear. Fear from litigation, fear from the regulator, the GMC, and fear from a managerial ethos that emphasises turnover not care.

Few seem to have considered the unintended consequences of disincentivising senior clinicians. The absence of merit awards (now discontinued in Scotland and being reduced in England and Wales) and other incentives to do extra hours will have calamitous consequences for Colleges, Associations, Research and Education all of which rely heavily on the good will of experienced clinicians

The proposed changes are a welcome recognition that something has to change. But they do not go far enough.

John MacFie

August 8th



Latest documents below:

A5 Top Ten Issues (PDF)

Tapered Annual Allowance (PDF)