Ministers are planning a major shake-up of NHS pensions designed to stop an exodus of senior doctors retiring early because current tax rules mean they can end up working for free, especially if they take on extra duties.
Philip Hammond, the chancellor, and Matt Hancock, the health and social care secretary, are studying plans which would end what NHS bosses and doctors’ leaders say is a “ludicrous” pensions tax trap that is exacerbating the health service’s already severe staff shortage.
They are considering changing the NHS pensions scheme so that staff can make only half their usual pensions contributions for up to 10 years during their careers. It is known as a “50/50” pension because healthcare personnel pay only half the usual amounts for a set period, but then receive commensurately less money when they start drawing their pension in retirement.
Already used in local government, it is designed to stop the current situation that means medics in the late stage of their careers are being hit with big tax charges for exceeding their pension allowance limits, especially if they do extra work.
Some of the service’s most experienced doctors are reducing their hours, refusing to plug rota gaps or quitting earlier than intended to avoid effectively being charged more than 100% tax on some of their earnings.
The disclosure comes days before NHS bosses are set to publish a long-awaited strategy to tackle the worsening shortages of doctors, nurses and other professionals. Figures show the service in England alone is short of 9,100 doctors and 40,000 nurses.
“Philip Hammond and Matt Hancock seem to agree that this is a good change to make. It would help the NHS stop haemorrhaging experienced doctors because of the existing pension rules,” said one senior NHS figure who has been made aware of the ministerial discussions.
Unions representing healthcare staff and NHS workforce experts are backing the plan, and NHS Employers, which negotiates terms and conditions on behalf of health trusts in England and Wales, is lobbying for its adoption. It has received strong support among members of the steering group convened by NHS Improvement, the NHS financial regulator in England, to help it draw up the interim workforce plan.
If ministers approve the change, hospital consultants would be able to switch from paying the usual 14% of their salaries into their pension to instead contributing 7% for up to 10 years.
The Treasury will have the final say. It will have to balance the downside of having less money if NHS staff start using the 50/50 approach with the benefit of paying out less later.
But an obstacle has emerged. While the British Medical Association backs the switch, it also wants the government to ease the problems facing senior doctors by altering the pension regime. Previous changes made to the rules governing the annual allowance and lifetime allowance schemes have led to consultants cutting their hours or leaving the NHS altogether. “The BMA’s stance is a problem because there’s no way any government, not just this one, is going to change the tax system to benefit people who are in the top 1% of earners,” said a source close to Whitehall thinking.
NHS Providers, which represents health trusts in England, urged ministers to take urgent steps to resolve this issue. “The lack of action on the pensions issue is extremely worrying. This measure has produced unforeseen consequences, resulting in punitive tax bills for senior doctors who carry out much-needed work for the NHS,” said Saffron Cordery, its deputy chief executive.
Dr Rob Harwood, chair of the BMA’s consultants committee, said: “The unintended consquences of changes to the pension taxation rules, coupled with changes to the NHS pension scheme, results in unfair and punitive changes being levied on doctors.
“This can mean doctors being charged effective tax rates of over 100% on their earnings with no subsequent benefit, and in some cases a reduction, in their pension.”
