End the pension tax trap for doctors

The current NHS pension scheme is driving doctors away from medicine. We outline how taxation is punitive, how it can be fairer and how you can help our lobbying by responding to a Government consultation on the NHS pension scheme in England and Wales.

Piggybank illustration

High contribution rates, significant pay erosion, and a punitive pension taxation system have resulted not only in an exceedingly high cost of scheme membership for senior doctors, but also in them receiving reduced pension benefits. This has resulted in large numbers of doctors retiring early or reducing their hours.

The BMA is lobbying for this to change. We are pushing for the introduction of a tax unregistered ‘top up’ scheme, similar to the one the UK government has introduced for judges from April 2022.

In a tax unregistered scheme, the employee does not receive tax relief on employee pension contributions. As there is no tax relief in the first place, the pension savings are not tested against the annual or lifetime allowance measures put in place to limit or claw back tax relief.


A combination of punitive measures

A below inflation pay rise

After 18 months of working under unprecedented pressure during the pandemic, the Government’s pay uplift this summer was just 3% for doctors, and other NHS staff in England and Wales.

This is less than the current level of inflation and hence in effect represents an effective pay cut.

In the NHS pension scheme, pension accrual is based on level of pay and therefore reduced pay has a significant, compounding negative impact on pension. This is particularly marked for those with final salary benefits.

Punitive pension tax

Equally detrimental to doctors are punitive pension taxation policies, made even worse by the recent freezing of the lifetime allowance until 2026.

The interaction between the NHS pension scheme and pension taxation policies has created a perfect storm in which the most sensible course of action for many to not lose out financially is to reduce their work or even cease working the NHS altogether.

Increased contribution rates and changes to the annual and lifetime allowances have impacted on clinicians perhaps more than any other group in the country.

Early retirement

This, coupled with the unrelenting pressures of the last 18 months, is likely to result in many doctors retiring early.

A recent BMA survey showed that 72% of respondents may retire early, with pay cuts and punitive pensions taxation the biggest drivers.


What the BMA is lobbying for

We are pushing for the introduction of a tax unregistered top up scheme. Whilst this means that there would be no tax relief on employee contributions, something that doctors do not currently benefit from due to the tiered contribution rates, pension savings would then not be tested against the annual and lifetime allowance tax.

This is similar to the one the UK Government has introduced for judges that will come in from April 2022.

The Government says that it made these changes for judges in light of 'unprecedented recruitment and retention' problems in the judiciary. The very same problems affect the medical profession. The judge’s scheme offers:

  • no tax relief on employee contributions
  • no need for annual or lifetime allowances (that claw back tax relief)
  • employee contributions of 4.26%, compared to 14.5% for doctors (or 8.5% net of tax relief)
  • 1/40th final salary defined benefit scheme.

The BMA believes that a similar solution must be found for doctors and other higher earners in the NHS. A tax unregistered scheme is fair both to the member and to the taxpayer.

Without this action, there will be an imminent workforce crisis within the NHS which will ultimately lead to worse outcomes for patients.


What the BMA is doing

  • Changes to the annual allowance

Last year, we successfully lobbied Government to secure changes to the annual allowance, announced in the March 2020 budget.

  • Continuously lobbying on pensions tax

More recently, we have been meeting with MPs, NHS Employers, the Department of Health, and NHS England and Improvement to call for an end to the system that results in doctors being unfairly taxed multiple times on the same pension growth. Our lobbying is intensifying through to the spring budget next year.

Whilst pension tax is not a devolved matter, we are also lobbying governments and departments of health across Scotland, Wales and Northern Ireland including discussions around local mitigations.

  • Representing doctors on the contribution structure

In the recent review into the employee contribution structure in the NHS, from which the current consultation comes, we were the only voice representing doctors.

More about the contribution structure

We argued that the current contribution structure is unfair, with the highest earners paying 14.5% with the lowest earners paying 5%.

This is simply not justified given that all scheme members will be in a career averaged pension scheme from April 2022, thereby removing any need for tiering within the scheme.

Furthermore, the higher tiers remove the benefit of tax relief in its entirety, and yet higher earners in the NHS are still subjected to the annual and lifetime allowance.

The highest rate of 14.5% (net 8.5%), is approximately twice as much as the planned contribution rate for judges (4.26%) once adjusted for tax relief.

Despite this, doctors still face additional taxation in the form of the annual and lifetime allowance.

We have also been highlighting the hugely unfair position for those working part time, who pay more per pound of pension than their full-time colleagues.

The UK Government have partly listened to us, agreeing that, from 1 April 2022, contributions for those working part time should be based on actual pensionable pay rather than whole time equivalent pay, and that the top two contribution rate tiers should be removed.

However, our view is that these changes don’t go far enough and we have been arguing for a completely flat contribution structure.

Government consultation

The BMA have been calling for an end to tiered contribution rates. There is no justification for this given that all members will be part of a career averaged scheme from April 2022.

We have also been calling for an end to an anomaly that results in those working less-than full time paying proportionately more for their pension than their full time colleagues. Whilst the Government have partially listened to our arguments, we do not believe the proposals go far enough.

You can have your say by responding to the Department of Health consultation on proposed changes to member contributions. 

The consultation comprises six questions, with the last one giving you the chance to explain why keeping unjustified steep tiering within the scheme is wholly inappropriate.

We are also expecting similar consultations on proposed changes to contributions for members in Scotland and Northern Ireland to be published soon.

By responding to the consultation in large numbers, we can demonstrate the extent of the dissatisfaction of the NHS workforce.  

We hope that members can help support our efforts to address this and ensure that the profession are heard and have this issue recognised and dealt with by the Government. 


Background to contributions to the NHS pension scheme

In 2008, tiered contribution rates were introduced to the NHS pension scheme, requiring higher earners to pay proportionately more than lower earners to access the benefits of the scheme.

The justification given for this was that the cost of the scheme should be fairly distributed and affordable for all members, and that higher earners were likely to receive more benefits than lower earners over the course of their retirement.

The DHSC consultation on proposed changes to these contribution rates follows the NHS pension scheme moving from final salary linked to a career average revalued earnings model.

Through these changes, the DHSC has said that it is aiming to ensure that:

  • the costs and benefits of the scheme are more evenly shared
  • participation in the scheme is preserved
  • the scheme’s value is protected for members in retirement.

Through the BMA response to the consultation, we will be reiterating our concerns on tiering and advocating for a totally flat structure of pension model, based on a fair yield percentage that would not create surpluses within the scheme.


Watch the webinar

BMA members can sign in and watch the pension committee’s webinar 'the real cost of the NHS pension and what the BMA is doing to improve things' which provides further information on these issues.

Sign in, if you are not already, to reveal the link below.