Government listens to BMA lobbying to address pension taxation crisis

BMA responds to the annual allowance budget announcement to increase the income threshold to £200,000.
Published: Wednesday 11 March 2020
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The BMA described the Government’s move to address the pension taxation crisis affecting senior doctors as ‘long overdue’. The proposed solution announced in the budget by chancellor of the exchequer Rishi Sunak will see an increase in the threshold income of all workers to £200,000.

Responding to the statement the chair of the BMA pensions committee, Vishal Sharma said: ‘Today’s announcement shows that the BMA, which has fought tooth and nail for 18 months to find a solution to the pensions taxation crisis, is at last, being listened to. An increase in the threshold income of all workers to £200,000 demonstrates that the Government has heeded the warnings from the BMA and finally taken account of the evidence we have presented.

‘The vast majority of doctors are now removed from the effect of the taper and will no longer be in a situation where they are ‘paying to go to work.’ But this solution is long overdue. For the past 18 months patients have suffered, and doctors have faced an intolerable dilemma with many forced to cut short their service to the NHS, reducing hours or turning down vital additional work – not being able to care for their patients as they would want to.’

Dr Sharma added that the BMA still believed that the annual allowance was unsuited to defined benefit pensions schemes such as the NHS. He said: ‘Many doctors with incomes far below the new threshold income will face tax bills as a result of exceeding the standard annual allowance which remains at £40,000. This can happen simply following a modest rise in pensionable pay, for example when receiving a pay increment, taking on a leadership role or being recognised for clinical excellence. In addition, there is no change to the lifetime allowance and many doctors will still need to consider taking early retirement. Furthermore, there remains an essential requirement to speed up the delivery of information to GPs about their annual pension contributions.’

‘Raising the level of the threshold income for all workers, including those in the private sector, will ultimately prove more costly to the Treasury than the BMA’s proposed solution of removing the annual allowance from defined benefit pension schemes, a proposal also suggested by the Government’s own independent advisors, the Office of Tax Simplification.

However, the fact that Government has committed to significant taxation reform demonstrates that our campaigning on behalf of members has been effective and will help the majority of doctors.

‘In the coming days we will be considering our full response to the Government’s announcement and raising those issues that remain unresolved. For example, it is essential that the recycling of employer contributions is mandated for those NHS staff forced to leave the pensions scheme as a result of pensions taxation. In addition, it is vital that these staff can retain their death in service and ill-health retirement benefits.

The change in pension taxation will be comprised of the two tapered annual allowance thresholds each being raised by £90,000, so that from 2020-21 the ‘threshold income’ will be £200,000. The annual allowance will begin to taper down for individuals who also have an ‘adjusted income’ above £240,000.

In addition to this minimum level to which the annual allowance can taper down will reduce from £10,000 to £4,000 from April 2020. This reduction will affect individuals with total income (including pension accrual) over £300,000.

The Government also confirmed that the lifetime allowance, will increase in line with CPI for 2020-21, rising to £1,073,100.