Pension Crisis for Doctors

Question.

My mother’s hip operation has now been cancelled. I have heard that consultants are no longer working overtime to clear waiting lists. Is this what Boris Johnson and Jeremy Hunt were debating about?

Answer.

In 2011 / 12, the then Chancellor George Osborne reduced the annual amount that UK taxpayers can put into pension from an amount of £255k to £50k. In 2014 / 15 this was further reduced to £40k which remains the current level of allowance. However, in 2016/17 a tapering of the annual allowance was introduced which reduces the amount from £40,000 down to £10,000 for adjusted incomes over £150k.

Where the problem arises is in the definition of “adjusted income”. Adjusted income is the taxpayer’s taxable income plus their “deemed pension growth” which is not the same as their annual earnings. Senior hospital consultants are almost all within the NHS Defined Benefit Pension Scheme which means they cannot control the amount of money that they put into the Scheme however they know what they will receive when they retire. What this means is that small increases in pensionable pay can lead to very large increases in deemed pension amounts.

There are some outrageous examples of how draconian this tax charge is with one example being a case whereby a doctor undertook an additional £2,000 of additional non-pensionable work to help out a colleague and incurred an extra tax charge of almost £10,000. Clearly no individual is going to volunteer to work for effectively -£8,000. The government has offered medical consultants and senior and high earners within Defined Benefit Pension Schemes the option of letting the pension scheme pay the tax charge however all this is doing is seriously eroding the value of their pension at retirement.

Another important factor in this calculation is threshold income which is £110k. Adjusted income is threshold income plus the deemed pensions growth however if threshold income is below £110k the annual allowance will not be tapered and therefore threshold income is now known within the medical profession as “cliff edge” income. In a real life but anonymised example, the BMA recently highlighted a consultant in their 40s who took on an additional £10k of work within the NHS. Quite unbelievably this generated a tax bill of £42k and if they get their pension scheme to pay the tax bill the tax bill will effectively rise to £145k by state pension age. In other words, by refusing to do the work the consultant will save £35k in a one off tax bill or £110k if they had gotten their pension scheme to pay the tax bill. The key planning point therefore is not to exceed the threshold income and for this reason many doctors are refusing to do any additional work, quite understandably, to avoid having unexpected and unwelcome tax bills.

This is having a crisis effect within the NHS with waiting lists in the UK is now heading for 5million operations. Boris Johnson has committed to scrapping this draconian tax if he is successful in becoming the new Prime Minister and certainly within the medical profession members of the Conservative it is likely to be a vote winner. NI based consultants should sit tight and await the Conservative leader vote.

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