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Explainer: pensions tax reform

The Doctor magazine
16 x 9

February 2020, Issue 18
CRISIS: Doctors face six-figure tax bills

Punitive pension taxation rules which are driving doctors out of the profession are set to be reformed – but will the changes go far enough?

What’s new with the NHS pensions crisis?

The Government has initiated a new Treasury-led review tasked with finding a solution to the punitive pension taxation rules.

About time. How long has this been going on for?

The BMA has been pressing ministers for a decent solution for 18 months. Each day we hear more stories of senior doctors facing huge, unexpected, tax bills for modest increases in their pensionable pay.

How bad is it?

Very bad. Doctors face six-figure tax bills for taking on extra responsibilities or climbing the career ladder, with some effectively paying to go to work. Earning £1 over the ‘tax cliff’ can land you with bills of up to £13,500. Many are, unsurprisingly, cutting back hours in response. Meanwhile, waiting lists have hit record levels.

That is bad. So what’s the Government’s plan?

According to credible media reports, the Treasury favours raising the threshold income of all workers to £150,000. This, the reports say, would solve the problem ‘for the majority of doctors’. Prime minister Boris Johnson has pledged to shorten waiting lists.

So will that solve the problem?

It will help some but it isn’t the best solution for doctors or the public purse.

The complexities of the pension scheme mean doctors earning less than £150,000 could still be caught out, leaving a strong incentive to cut hours.

Analysis by the BMA and the Institute for Fiscal Studies, a respected tax research body, shows that the reported proposal is more expensive than the BMA’s option.

So what is the BMA’s preferred plan?

The BMA is calling for the removal of the annual allowance, including the taper, in defined benefit schemes, such as the NHS pension scheme. This would be the fairest, most effective long-term solution, resolving the issue for all doctors affected, as well as being cheaper for the public purse.

Sounds good. So what can I do?

You can find out more and ask your MP to support our proposal.

Great, thanks. When will we find out which way this goes?

The Treasury is expected to announce the results of its review of pensions tax in the Budget on 11 March.

Read more from Keith Cooper and follow on Twitter.