Doctors who exceed the tapered annual allowance should be able to avoid sudden tax demands with the NHS Pension Scheme set to pay the additional tax for them upfront.
Previously, the NHS Business Services Authority, which administers the pension scheme, operated a ‘scheme pays’ process for some pension related tax demands, but the Government did not allow this to cover payments on behalf of GPs and and other doctors who exceeded the tapered annual allowance.
The government has now agreed to allow these payments.
Tax paid
Under the ‘scheme pays’ system, the pension scheme pays the tax and recoups the money from the GP’s pension pot over time.
The British Medical Association has been warning for some time that the tax demands arising from complicated and increasingly pared back pension allowances has been driving some GPs to leave the scheme and in extreme cases leave practice. The BMA had been lobbying the Chancellor Philip Hammond asking him to allow the change.
The GP trade magazine Pulse has reported that 3,000 GPs took their pension early in part because of pension tax issues exacerbating a recruitment crisis.
Now Secretary of State for Health Matt Hancock has written to the BMA to say that he has asked the NHS Business Services Authority to extend the payment scheme as soon as possible.
Hargreaves Lansdown’s head of retirement policy Tom McPhail says he does not believe the move is driven by any fiscal concerns, but it is a small step to assuage doctors’ concerns given some are retiring early due to pension issues.
At the same time, he believes we will see adjustments to the annual allowance which could catch out more GPs. Cuts to the annual allowance are widely predicted with several national newspapers predicting the change and citing Treasury sources.
While the move to allow the NHS pension scheme to pay GPs’ extra tax may will cut down on paperwork and minimise the risk of GPs getting in disputes with HMRC, a cut to the annual allowance would see many more doctors and other senior public servants potentially paying significantly more tax related to their pensions.
Dr Richard Vautrey, BMA GP committee chair, says: “At a time when there are widespread recruitment and retention problems in general practice and across the health service, it is unacceptable if complex and rigid pension policies present financial disincentives to doctors taking on new positions or considering additional work.
“In August the BMA wrote to the Chancellor on behalf of its members to highlight a situation in which rules meant doctors were being forced to pay out large amounts of money each year, often unexpectedly, and in turn were considering pulling out of the pensions scheme. In the very worst cases, this meant doctors may have chosen to leave to profession altogether.
“Following this representation to the Chancellor, we are glad that the NHS pension scheme has agreed to extend the scheme pays facility to members who exceed the tapered Annual Allowance.
“While this will not solve the recruitment and retention crisis in general practice alone, extra flexibility around these rules is a welcome step and an important change for our members.”
