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Tax allowance rules affect labour supply

High earners such as consultants 'are having to limit the number of hours they work for the NHS for fear of breaching the annual tax allowance'

Consultants may be opting for early retirement because of changes to tax allowances on pensions, the Government has admitted.

In its evidence to the Doctors and Dentists Review Body, the Department of Health and Social Care says 'there is evidence of high-earning individuals opting out of the scheme or leaving NHS employment through early retirement'.

It says this may be owing to the effect of the Government lowering lifetime and annual allowances on the tax relief available for pension payments.

The lifetime allowance has fallen to £1m, just over half what it was in 2011/12. The annual amount which can be paid into a pension without incurring a tax penalty is now £40,000, a fraction of the allowance seven years ago.

The allowance is lower for those with ‘threshold income’ of more than £110,000 a year and who also have ‘adjusted income’ of more than £150,000 a year.

‘Adjusted income’ is the total, of all sources, of taxable income falling in the tax year plus the value of any pension saving in that year. More guidance on how to calculate this can be found here.

There has been a 20 per cent increase in the number of employed doctors taking voluntary early retirement between 2012/13 and 2016/17, according to the DHSC's evidence.


Worst possible timing

BMA consultants committee acting chair Rob Harwood (pictured) warned that, at a time of chronic recruitment problems in the NHS and unprecedented workload, the service could ill afford to lose some of its most experienced doctors.

'Early retirement is, however, only one dimension – a dimension that can more easily be measured – of a more widespread problem.

Consultants Conference 2018'Many more doctors are having to limit the number of hours they work for the NHS for fear of breaching the annual tax allowance and incurring sometimes huge amounts of additional tax charges. These issues contribute to pressure on consultants to reduce the amount they work for the NHS,' he said.

'The BMA has warned for some time that reducing the annual allowance and lifetime allowance would lead to doctors leaving the scheme. Instead of working with us to manage scheme withdrawal – which impacts on the funding required – they have further reduced the annual allowance.

'Without drastic action, more doctors will leave the scheme, which not only impacts on them as individuals but also the remaining scheme members who will see their contributions increase still further.'

BMA guidance on the annual allowance and the lifetime allowance

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