NHS England has confirmed an emergency plan to allow pension tax bills incurred by doctors to be paid through the ‘scheme pays’ option, in an open letter sent to leaders of the British Medical Association, Unison and a range of Royal Colleges.

Despite initial reports by The Times that Health Secretary, Matt Hancock, was to issue a ministerial direction to carry out the plan, the letter clarified that due to the “urgent operational requirement to tackle the problem … NHS England and NHS Improvement have decided to take exceptional action to address the issues”.

The commitment is supported by the Department of Health and Social Care and the government, with the NHS England website also confirming employer provisions will be “offset by a commitment from NHS England and government to fund the commitments when they arise”.

NHS chief executive, Simon Stevens, wrote: “The NHS will therefore now ensure that clinicians who exceed their NHS pension annual allowance in this financial year are not left out of pocket.”

Through the scheme pays option, NHS staff are able settle annual allowance tax charges of over £2,000 by deducting the doctor’s pension pot. The NHS has assured staff and members of the scheme that it intends to make a “contractually binding commitment” to pay the corresponding amount on retirement.

Commenting on the plans, Aegon pensions director, Steven Cameron, said: “This solution will avoid medical professionals shouldering punitive tax bills but it is particularly convoluted."

The plans will cover the full tax charge for the main NHS scheme pension accrual, not just additional work, and members who had previously opted out will be able to prospectively opt back into the scheme “and are encouraged to do so”, according to the NHS England FAQs.

As a temporary measure the plans will only include the 2019/20 tax year. Payments are not expected to be made before 2021/22 and NHS England confirmed that “the mechanism [to reimburse costs] will be set out before then, in conjunction with employers and trade unions”.

The plans were met with a mixed reaction when first reported earlier this week. Royal London director of policy, Steve Webb, described it as “a bizarre merry-go-round” that has “one part of the public sector paying money to another in order to resolve a short-term crisis”.

The NHS’ Stevens stated in the letter: “It is rightly for government, not the NHS, to make judgements on wider issues of pension tax design and incentives, and their equitable application. However given the deferral of the Budget and the calling of an election, a substantive answer from government to the tapered annual allowance issue now seems unlikely to take effect before the new tax year, from April 2020.”

Cameron agreed that broader pensions tax reforms would be needed, stating: “Rather than rearranging the deckchairs, what we need is a fundamental review of how pension allowances work, not just for the NHS, so they reward good savings behaviour and never penalise taking on extra work."

The Scottish government also introduced an interim policy earlier this week, giving NHS staff the option to receive their employer pension contributions as part of their basic pay.

Although the Labour manifesto published yesterday (21 November) did not outline details for a specific solution, it did refer to the tapered allowance, pledging to “review the tax and pension changes implemented by the Tory Party”.

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