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Once upon a time pensions was a topic reserved for those approaching retirement. Something for the grey-haired brigade to ponder whilst the rest of us got on with our careers. No longer. The hot topic in coffee rooms amongst all but the most recently appointed colleagues is the great pensions and tax rip off.
Times past, the NHS pension was rightly regarded as one of the ‘golden’ aspects of public service employment; we used to reassure ourselves that although we started earning later and less than similarly qualified professionals, at least there was job security and a decent pension at the end of it all. The latter is certainly a barely credible and crumbling edifice, taking a huge knock with the 2015 scheme changes and more recently with tax hits that would stretch the credulity even of those who still cling to the idea of consultants as a privileged cadre of work-shy, golf club wielding fat cats.
The stack of hits is not a happy one: First we had the unfavourable terms of the new CARE scheme in 2015 where unjustifiable tiered employee contributions have been allowed to persist and indeed increase to punishing levels of almost 15% of salary. On top of that, many of the benefits of the previous scheme have been diluted or lost with an unrealistic expectation that very demanding consultant workloads can be extended into the late 60s, and, who knows, maybe the early 70s before long. The image of a Zimmer frame standing close to the operating table, and that walking aid being for me as surgeon and not the patient seems less of a joke and more of a future reality.
Yet eclipsing all of that comes the multiple tax thumbscrews that have been brought to bear on us. We have the lifetime allowance (the ‘ceiling’ of our total pension contributions before more tax burdens hit) now lowered to just above £1 million – once seeming to be a huge sum, but now readily exceeded by all consultants in their career lifespan. This is coupled with the annual allowance which has been reduced down to £40,000. On the face of it such an annual contribution to one’s pension pot seems a plausible cap however the creative formula that is used to estimate the increase in a pension pot in any given year makes some ludicrous assumptions – for example that the consultant will need to survive to be an octogenarian before the tax burden will have been balanced by pension benefits.
The perfect storm of pension impacts comes through the ‘tapering’ of annual allowance concept applied to the range of incomes that many consultants hit in their mid to late careers. The consultant’s entire income contributes to tapering so the thresholds can be breached by doing additional non-pensionable work. This can generate an annual allowance ceiling as low as £10,000 which is readily and regularly breached by pay increments and receipt of multiple discretionary points. Indeed, the pension growth itself is added to the total ‘adjusted income’, further reducing the annual allowance
As a result, colleagues face huge annual allowance tax charges that are difficult to calculate and may generate sudden unexpected tax burdens reaching tens of thousands of pounds. The answer for many is to resort to the pension ‘scheme pays’ to bail them out of these punishing tax burdens, but these loans bring with them a reduced pension benefit and attract interest rates far higher than your mortgage. This significantly reduces your final pension and, in some cases, means you will be financially better off by reducing your income by working fewer hours.
In Scotland we face higher marginal higher income tax rates than the rest of the UK, making the whole thing worse, I’m afraid to say.
It is little wonder that this bewildering landscape leads to consultants ‘opting out’ in increasing numbers: This may include:
Most colleagues are surprised by the natural injustice of a pensions taxation system that can mean tax rates for some income exceeds 100% (i.e., you lose money by working). The BMA wastes no opportunity to point this range of problems out to both the Scottish and Westminster Governments. Regrettably to date there has not been an appetite amongst our political masters to address this although there is a dawning realisation that there is likely to be a growing and significant impact in the capacity within the health service over time.
I have heard from many members that they are hugely frustrated by this whole situation. We’ve been taking action on a UK level – as this needs to be sorted by Westminster as well as in Holyrood. But we need to keep the pressure up. That’s why I have written to my MP on these issues just this week - you can read the letter in the PDF file at the bottom of this blog. If you want to keep this issue on the political agenda of Scottish MPs – then the more letters the better. So please have a look at my letter and if you have time, write to your MP in a similar way. If you want a Word version of the letter to adjust with your own personal views, simply email the BMA at [email protected]
and we’ll provide the template for you. And if you do write, please do let me know what you write and the answers you get, again by emailing as above so we can keep track of the strength of feeling.
The BMA pensions page is a great place to start for more information. If you find yourself in difficulty with pension calculations, the BMA pensions department are on hand for advice. You are strongly advised to consider independent expert financial advice in respect of tax and pension decisions since this is a patently complex area with many individual factors to be taken into account. Finally, do watch out for the upcoming pensions calculator tool that the BMA is developing – this should help each of us to make informed decisions about work life balance and expectations of remuneration for different elements of our work moving forwards.
Simon Barker is chair of the Scottish consultants committee
This is an excellent summary of the issues facing colleagues in Scotland. Without recognition and amelioration of this tax burden there will be no incentive to continue working into later years unless absolutely necessary. This will result in the loss of many experienced senior staff in an already stretched service with many existing vacancies.
Good article! Thanks for finally taking notice and doing something. I have been raising this with my MSP, MP, Cab Sec, Ministers of State and PAPLS for several years. I am now lobbying to get us the employers contributions as salary like numerous NHS Foundation Trusts are actioning in England. Good recruitment and retention incentive unlike the other disincentives vs England (i.e. higher taxation rates, independence uncertainty, lack of awards). It is also cost neutral to the NHS. Let me keep my employee and employer contribution as salary, they are trying to tax me on it now anyway, I'll pay the tax and then I'll invest for myself thanks. In short, we cannot trust public sector pensions any more, we cannot trust the government on taxation and we cannot trust the DDRB, which is definitely not an independent pay review body (unlike iPSA). If I were older I would retire early and get out of here. It's almost like the scheme, contribution and tax changes were sequentially designed to destroy the NHS as we know it...
Agree wholeheartedly with comments earlier. However the naive and the asleep members are needing educated and made aware of the impending disaster for their personal finances and work life. This is possibly the biggest upset in NHS history to stability and delivery. Only good thing is some managers will be in same boat. However SGHD have forbidden Boards to reimburse employers contributions to staff.
Re: the comment "However SGHD have forbidden Boards to reimburse employers contributions to staff." - can you point us to any evidence of that? I would be very interested to see it. Thanks.
Excellent article. I’m off to write to my MP immediately.
FORBIDDEN - Would an e mail from the finance director of one of the largest health boards in Scotland satisfy you? Why don't you go and ask your finance director yourself? Or put in an FOI? Some trusts in England will pay employers contributions to staff if they leave the scheme as they save on national insurance seemingly. But not in the glorious NHS Scotland.
Yep a copy of the finance director's email would be fine thank you! I will indeed ask my own FD.
I am aware of the English situation, they have been doing this for a couple of years. BMA Pensions told me about it back in 2017/18 and I liaised with "Goldstone" on Doctor's Net on this and he is now the BMA Pensions Adviser, which is great for England. NHS FTs pay the employer contribution minus the employer's NI (for which they can no longer claim relief), it is cost neutral to them.
Evening all - both the calculator and my role will be for all 4 nations of the UK. I have already raised the apparent inequity between some English FTs allowing retention of employER contributions (less employers NI so cost neutral) whereby this option does not appear to be supported elsewhere. This must change or the system could collapse. Dr. Tony Goldstone