National Health Service Pension Schemes (Member Contributions etc.) (Amendment) (No. 3) Regulations 2022 Debate
Full Debate: Read Full DebateLord Davies of Brixton
Main Page: Lord Davies of Brixton (Labour - Life peer)Department Debates - View all Lord Davies of Brixton's debates with the Department of Health and Social Care
(1 year, 7 months ago)
Lords ChamberThat this House regrets that the measures proposed by His Majesty’s Government in the National Health Service Pension Schemes (Member Contributions etc.) (Amendment) (No. 3) Regulations 2022 (SI 2022/ 1028) are insufficient to address fully the problems with staff retention in the NHS arising from the NHS pension arrangements.
Relevant document: 15th Report from the Secondary Legislation Scrutiny Committee
My Lords, to a certain extent the burden of this Motion is uncontestable; the Government themselves accept that the measures proposed are insufficient because they have put down some further changes that will come before us in due course. I look forward to a further debate. This is an important issue, and I welcome the opportunity for a discussion.
Yesterday, on the winter crisis Statement, the Minister said that
“we should be learning all lessons. I like to think that, three months into my role, I am learning some of those lessons.”—[Official Report, 10/1/23; col. 1316.]
I am pleased to provide the opportunity for the Minister to learn more about the impact that the pension tax rules—the lifetime allowance and the annual allowance—are having on the work that he is undertaking to get our NHS back into shape. I did not seek to intervene yesterday when the Minister made the Statement, as I knew we had today’s debate. Of course, the crisis is not the product of short-term problems but the result of 12 years of political choices—but we are not going to debate that again.
The taxation issues, however, are still highly relevant. It is no good promising extra beds and shorter waiting times if you do not have the staff to provide the care, and there is no doubt that the rules are having an adverse effect on staff retention at senior levels, as well as—possibly even more important—on the morale of the staff whom we depend on. We are all agreed: for example, the last Prime Minister promised to
“stem the exodus of doctors from the NHS”,
and the Prime Minister before that promised to fix the pension tax relief rules. The current Chancellor, albeit before he took up that role, called the situation a national scandal. He also tweeted on 4 August that, among the actions needed to get the NHS back on its feet, the Government should:
“Grant an immediate exemption for doctors to public sector pension rules which are currently forcing them to retire in their fifties in alarming numbers”.
Even the current Health and Social Care Secretary, Steve Barclay MP, has said that the NHS Pension Scheme
“is one of the best in the country, but it’s not working as it should for everyone”,
so I am pleased that the Minister is here and ready to learn lessons. The problem, as he might be the first to acknowledge, is that the real solutions are not in his hands or those of his department. The solutions lie in the hands of the Treasury, which sets the pension tax rules and effectively controls the rules of public service pension schemes. Of course, this is a general problem which I could speak at great length about, but given the crisis we face in the NHS it is right that in this debate we should focus on what can be done in this area for the NHS.
As I have said, my Motion is indisputable. These provisions were inadequate and we have further changes, which are currently the subject of discussion. The Secretary of State has said:
“We need a system where our most experienced clinicians don’t feel they have to reduce their workload or take early retirement because of financial worries”.
This suggests that he understands the problem but, unfortunately, the further proposals currently out for consultation tell us that he does not, and that what has been proposed so far is insufficient. This is where it starts to get technical and the current forum, where slides and spreadsheet presentations are out of order, is not really conducive to a full explanation. Possibly it might be useful to have a meeting, but let us have a go at outlining the issues.
There are a number of problems, not least the lifetime allowance, but I want to focus in this debate on two issues that arise from the annual allowance: the limit on how much extra pension National Health Service employees can accrue each year, tax free. If you exceed the limit, there is a penal tax rate involved on the portion of growth of a member’s pension rights in excess of a defined amount, currently £40,000. It is a penal rate because tax is levied on the money as it goes into the scheme and then again when it is paid out as benefits. Effectively, that is a tax rate on pensions savings of up to 70%. While I am not against high earners paying more in income tax, it still needs to be applied equitably and fairly, and certainly not when people are doing the right thing by providing themselves with an adequate pension.
The growth in pension savings during a tax year, which is limited by the annual allowance, is referred to as the pension input amount. This is the increase in the value of the individual’s pension rights, starting from an opening value immediately before the beginning of the tax year and going to the closing value at its end. It consists of two parts: the increase in the pension that they had previously accrued and the additional pension that they earned during the current year. If, after allowing for inflation, an individual’s pension input amount is more than the annual allowance of £40,000, the individual is liable to pay tax on the excess, so the clear intention is that the pension input amount should consider only growth in pension savings above inflation. There are two major problems with how this works in practice. First, there is an index mismatch; secondly, there is the problem of negative pensions growth.
My Lords, I thank the Minister for his response. I am sure everyone will be relieved that I am not going to push the Motion to a vote and say that my main intention this evening was to ensure that we took this opportunity for the relevant department and the Minister to understand the issues involved. The solution has to be one which is acceptable to the doctors. It goes without saying, really, that we can discuss this as much as we like, but it is the doctors who have to say, ultimately, “Yes, this solves the problem; we are not being forced to retire.” In that light, I beg leave to withdraw.