Omnium Employee Benefits

NHS pension crisis: the law of unintended consequences

Recent news items have focussed on the refusal of NHS doctors to work extra hours because this additional work is resulting in draconian tax charges in relation to their pensions.

This is a classic case of the “law of unintended consequences”, courtesy of George Osborne during his reign as Chancellor of the Exchequer between 2010 and 2016.

One of the (many) changes to pensions legislation he introduced was the Tapered Annual Allowance, which came into effect from the 2016/17 tax year. This means that anyone earning more than £150,000 in a tax year may be subject to a reduction in the total amount they can contribute to a pension in any one tax year. Once earnings exceed £210,000 in a tax year, the total pension contribution is capped at £10,000 per tax year.

This may still sound generous, however, it is not just ‘fat cats’ who have higher earnings – doctors are just one example and there are many others. It is broadly agreed that we all need to save more into our pensions, so why then penalise those who do and earn above a specific level?

The issue with the NHS is exacerbated by the complexity of their pension scheme. The formula used to calculate the tax charge is highly complex and probably beyond the understanding of someone who is not qualified to advise on tax or personal finance. Doctors are medically qualified; they are not accountants or actuaries.

The solution is easy – remove the Tapered Annual Allowance altogether and allow everyone to save up to the current £40,000 ceiling each tax year without interference.

Hopefully, with over four million currently on the NHS waiting list, this is high on Sajid Javid’s agenda.

We can help

If you have been affected by the Tapered Annual Allowance, or would like to discuss your pension and retirement options, give one of our advisers a call on 01483 205890.


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