The government should scrap the tapered annual allowance for tax relief on NHS pension schemes, even if it means reducing the overall annual allowance, according to Royal London.

In a new report, Royal London labelled the options favoured by the chancellor of making changes within the NHS scheme and NHS pay arrangements as being “sticking plaster” solutions for a more ingrained problem.

Royal London director of policy, Steve Webb, said that the current system of tapering annual allowances was “ludicrous and capricious”, and that the issue is likely to impact NHS staff more in 2019/20 than in previous years.

This is because the ability to ‘carry forward’ unused annual allowances from up to three previous years will now only go back to 2016/17 – the first year when the tapered annual allowance was in force.

Previously, doctors could ‘carry forward’ from 2015/16 when no reduction applied.

Commenting on the report, Webb said: “It is utterly absurd that doctors are having to consider their pension tax position before deciding whether or not to take on an additional shift or cover for an absent colleague.

“The NHS is structured around senior clinicians taking on additional roles and responsibilities and this whole culture is being undermined by a bewildering system of pension tax relief.

“Rather than tinkering with the NHS pension scheme, the Treasury should abolish the ludicrous and capricious system of tapering annual allowances for tax relief.

“Patient care must not continue to suffer on the altar of Treasury intransigence”.

In January 2019, NHS employers urged the Treasury to review the impact of current tax rules, as some feared that current tax allowances are making the scheme “less attractive” to high earners, with some staff cutting down their hours, retiring early or leaving completely as a result.

In its report, Finding the right medicine – solving the problems between doctors and their pension schemes, Royal London noted that the tapering of the annual allowance does not just affect doctors but also affects self-employed people, those receiving bonuses, and anyone else whose annual income is unpredictable.

The paper concludes that reform of the tapered annual allowance would not go far enough and that outright abolition is required.

It stated that it believes this would tackle many of the issues around doctors being reluctant to do shifts because of unpredictable tax bills.

Share Story: