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You will no doubt be aware of pension taxation issues and the effect of the AA (annual allowance) on senior doctors.
Consultants and GPs have been facing large, unexpected tax bills and the paradoxical situation that doctors can be financially disadvantaged by doing more work. The BMA has been highlighting the dangers to our members and lobbying for pension tax reform.
However, it is vital you’re aware that this issue only becomes a problem with higher levels of pensionable pay, or if there is a large increase in pensionable pay. Consequently, this is not an issue that junior doctors should be fearful of. It would be exceptionally rare for a junior doctor to receive an AA tax bill – we are aware of only one instance and we believe this is an error. In the vast majority of cases, the transition from junior to consultant or GP should not result in an AA tax bill and similarly, returning from maternity leave or to full-time working, should not result in a bill if calculated correctly.
Unless affected by pension taxation, the NHS pension scheme remains extremely good value for money and indeed there are probably few better investments that you can make. No junior doctor should consider leaving the pension scheme without first taking detailed financial advice – only in extremely exceptional circumstances would it be in your best interests to do so.
We are aware of the issues that resulted from the pay rise that was backdated to April 2019, pushing some people into the next tier of pension contributions. This meant some junior doctors having to pay additional sums to their previous employer. This is not an ideal situation, and reference to it will be included in this year’s submission to the Doctors and Dentists Review Body. However, this problem relates to the tiering of contributions (which have no justification in a career average pension scheme) and not pension taxation. Consequently, although not pleasant to have to pay extra, the additional pension you will have received is far in excess of the additional amount paid. You can read more about this here.
Despite the recent justified bad press about pensions taxation (annual and lifetime allowance), coupled with some doctors crossing tiers into higher thresholds, which temporarily reduces take-home pay, no junior doctor should ever seriously consider leaving the NHS pension scheme. It remains excellent value for money for juniors. And this will continue to be the case at least until pensions tax becomes an issue for more senior consultants and GPs.
For example, a 28-year-old junior now earning £49,036 (and therefore just in the 12.5% tier) will pay £6,129.50 in gross pension contributions. For that you will earn £908.07 in pension. However, that increases by 1.5% above inflation each year, so will be worth £1,645.25 per year by state pension age (likely to be at age 68). Your pension will then increase by inflation, so assuming you draw the pension for another 24 years your £6,129.50 contribution will have bought you £39,534 in pension payments (in today's terms). This represents far better value for money that anything you would be able to purchase in the open market with your pension contributions if paid as normal salary.
Finally, you may be aware of the legal case brought by the BMA regarding age discrimination and the introduction of the 2015 pension scheme. This is continuing, but based on similar cases brought by the judges and firefighters, we believe that one option would be a reversion back to the 2008/1995 final salary scheme to cover the period 2015 until this is resolved (eg 2021). If that were to happen, the time spent in the pension scheme now would form part of a final salary pension scheme and hence would become even more valuable.
It is also important to remember that if you opt out of the pension scheme, you have significantly reduced ill-health retirement and death-in-service benefits should you unfortunately become ill or sadly die while not actively contributing to the scheme.
I would therefore strongly advise that no junior opts out of the pension scheme without taking detailed financial advice and carefully considering, not just the costs now, but the benefits you will receive at retirement.
Vish Sharma is chair of the BMA pensions committee
Who's living for 24 yrs after retirement?? You're assumption is absurd. Maybe 15 years if lucky. So is closer to £25000. Still a very good investment for £6k per year.
I would advise you take your pension moneywhilst young, invest in a2nd property and rent it out. Pay off in full by retirement and you have 2 homes. Your future is much more certain. Keep the pension but don't trust other people to look after your money