Budget 2020: Government to alleviate NHS pension woes?

In the weeks preceding the 2019 General Election, the political hot-potato that is the NHS was never too far from the headlines. Amongst the fears of privatisation and a winter crisis came a rather startling break from convention by health secretary Matt Hancock, who risked violating purdah rules to announce a one-off intervention to annual allowance for 2019/20.

The contractual agreement, as devised by NHS England, promised that where a clinician elects for the pension scheme to pay their 2019/20 annual allowance tax charge, the government will, upon retirement, compensate in full the pension reduction that will be suffered due to submission of the scheme pays election.

For clinicians, the tax savings arising from this may not be obvious beyond the fine print of their pension projections, though for many it will amount to five-figure savings upon taking their pension.

While this move has been welcomed, it is also undeniably a temporary measure. Pertinently, it is also in effect an admission that the current legislation concerning pension tax relief is not working to the benefit of the NHS or its clinicians. This brings us to promises published in the Conservative pre-election manifesto, and looking forward, what we might expect from the upcoming budget due on the 11th March.

Tapered Annual Allowance

Working alongside the BMA, the government promised a review of the tapered annual allowance, which reduces the standard £40,000 allowance available on pension contributions down to a minimum of £10,000, where individuals have income exceeding £110,000 and income plus pension growth in the year above £150,000.

Since the introduction of the taper in April 2016, there has been a gradually increasing trend of clinicians refusing additional work or even opting for early retirement due to the exorbitant marginal tax rate that can arise on additional income when subjected to the taper. This is a significant factor in the stagnation of FTE GPs in the four years to September 2019, the consequences of which are being felt throughout Primary Care and, ipso facto, the NHS as a whole. As the situation had progressed, the need for reform has become ever more apparent.

Possible reforms

The government has a number of options available to remedy this problem and achieve a more long-term solution which still incentivises saving for retirement. Some of these options include scrapping the tapered annual allowance entirely, this would take us back to pre-2017 where a lot fewer clinicians were affected, though this would come at a forecast cost of £7bn to the Treasury over the next five years. Alternatively, increasing the £110,000 threshold income, again trying to reduce the number of people affected by the taper.

Summary

While the promise of review and possible reform was included in the Conservative party manifesto, the recent resignation of Chancellor Sajid Javid does pose a question as to whether his commitment to look at pension taxes will be shared by Rishi Sunak, the newly appointed Chancellor of the Exchequer.

We also can’t forget the discrimination case that the BMA won against the government with regards to the NHS Pension Scheme and transition members.  We will have to wait and see what impact this has on pensions and Annual Allowance charges for both transition and non-transition members.

If you have questions on the above, please get in touch with a member of our Healthcare team.