Chancellor Philip Hammond is in talks to make public service pension arrangements "more flexible", in order to find a possible solution to the NHS pension crisis, he has said.

Responding to the Treasury Committee last Friday, 26 April, Hammond said that it would be difficult to solve the problem through more tax relief, but a solution could be found by offering more flexibility around the overall remuneration package.

The problem stems from the introduction of the tapered annual allowance in April 2016, and the lowering of the tax relief threshold from £1.25m to £1m, which has meant that some GPs are penalised for continuing to pay into their pension fund.

Last week, the British Medical Association (BMA) has criticised the government for not listening to, or advancing, proposals it has suggested to address the “perfect pensions storm” facing the NHS.

Hammond told the committee: “Clearly, we cannot say that we will treat NHS staff differently from everybody else, just because we are the employer in that case. Where there is a case that can legitimately be made is that, in the private sector, there is often more flexibility around the overall remuneration package.

“Someone who finds that pension contributions are highly taxed, because they are facing a tapered annual allowance, with a private sector employer will often be able to arrange to change to their remuneration package, so they get more pay and less pension contribution.”

He said that he “was engaged in a discussion on these issues with the Health Secretary [Matt Hancock]”, adding that he hoped to find a solution to introduce “additional flexibility” to NHS pension schemes.

“Public service pensions are not that flexible and that is where we have to look for a way forward in this challenge.

"Can we make public service pension arrangements a little more flexible, to find a solution that avoids highly paid consultants deciding to retire early or cut down their hours of work, in response to annual allowance charges on their pension contributions?,” Hammond said.

The comments came after the Chancellor was asked about reports that the NHS is helping doctors avoid large tax bills by paying their contributions in cash, instead of directly into their retirement funds.

York and Harrogate NHS trusts are two of the bodies offering the cash payments, the Financial Times report said.

Last month, a joint report from Nuffield Trust, Health Foundation and The King’s Fund said that urgent measures must be taken, such as the introduction of partial transfers to stop senior NHS staff from leaving the health service.

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