NHS Pension Scheme: Tapered Annual Allowance

Paul Sweeney Excerpts

Tuesday 2nd April 2019 Westminster Hall

[Paul Masterton]

That is exactly right. I asked for a Treasury Minister to reply to this debate, because the underlying legislation is a Treasury issue, but it is important to have a Health Minister here today to hear at first hand the stories that are being raised by MPs.

In recent months, it has become increasingly apparent that the pension tax rules are resulting in unexpected tax charges being levied on a large number of GPs, senior doctors, surgeons and consultants right across the UK. I believe that if the issue is not addressed, serious capacity gaps in the NHS will only be made worse.

In Scotland, 7.6% of consultant posts are vacant, and more than half of those have been vacant for more than six months. There is a similar picture in the NHS in all other parts of the United Kingdom. In a recent survey by the Hospital Consultants and Specialists Association, more than 40% of the doctors questioned said that pension taxation changes had led them to change their plans and retire earlier than expected.

The way in which the tapered annual allowance operates means a significantly reduced annual allowance ceiling is hitting many of the NHS professionals that I, and the hon. Member for Strangford (Jim Shannon), mentioned in their mid to late careers. As their entire income is taken into account for the purposes of tapering, the threshold can be breached even by doing non-pensionable work, including covering for absent colleagues, extra programmed activities or waiting list initiatives. NHS staff on pay-as-you-earn cannot avoid the notional pension input amount calculation. As a result, many consultants are being hit with unexpected five-figure tax charges. A number are now dropping extra work, turning down hours or going part-time to negate or avoid the penalties.

Of course high earners should pay their fair share, and all the doctors who have contacted me want to do so, but they are paying rates of more than 60% as a result of the taper. Some are paying effective rates of more than 100%. Many consultants who continue to do non-pensionable overtime are effectively paying the Government to go to work, while receiving no additional pension benefit.

[Mr Paul Sweeney (Glasgow North East) (Lab/Co-op)]

The hon. Gentleman is making a powerful, forensic speech on this critical issue facing the national health service. Several of my constituents have been in touch about it. One consultant mentioned that the impact of this issue on NHS Greater Glasgow and Clyde will be huge, because waiting list initiatives ensure that the health board does not receive penalties, so it militates against efficiency in the national health service and will cost more in the long run. It is a total false economy. Surely the Minister can take action with the Treasury to get this sorted out quickly.

[Paul Masterton]

The hon. Gentleman raises a good point. Our constituencies share a health board. The examples of people who work for NHS Greater Glasgow and Clyde show exactly the consequences and knock-on effects.

One surgeon contacted me to tell me that he was hit with a tax bill of £62,000 because he received a national award. People who receive a bonus or a pay rise can find themselves with a whopping tax penalty as a consequence. Rigid pay and pension rules in the NHS mean that their ability to mitigate the issue is pretty much non-existent, certainly compared with people in the private sector, because there is not the flexibility to reduce contributions or request cash in lieu of pension if there is a danger of breaching the allowance. The only option, as we have heard in Members’ examples, is to opt out of the scheme altogether or drastically reduce working hours. This issue is becoming a huge driver not only of early retirement, which in itself is extremely serious, but of enforced reduced working hours. That is having an impact on NHS care and creating lost capacity. Waiting times, which are a problem in various areas across the UK, are hit because these perverse rules mean that consultants refuse the overtime that is needed to help clear the backlog.

The investigation by the Financial Times found that the issue had increased the risk of delays in cancer diagnosis in some parts of the UK and lengthened waiting times for procedures such as hip replacements. Critical areas such as intensive care and radiology are also being affected. One consultant said that about 50 fewer patients were being seen per week in the cancer clinics they cover, as a result of doctors turning down extra shifts.

A consultant who lives in my constituency contacted me following receipt of a tax charge of £29,000, despite doing no work outside the NHS. He told me that he will now have to drop a session of clinical work to try to ensure that it does not happen again, and that he is actively considering early retirement, having reluctantly started to reach the conclusion that there is no incentive for him to continue his career beyond the age of 60. He has been forced into that position by the clear unintended consequences of the pension system.