NHS Pensions

Philippa Whitford Excerpts

Wednesday 26th June 2019 Westminster Hall

[Dr Philippa Whitford (Central Ayrshire) (SNP)]

I declare an interest: I spent more than 30 years as a consultant in the NHS and am married to a GP, so naturally the issue affects us. However, it also affects many of our colleagues.

The first thing to hit was the lifetime tax allowance changes. In my husband’s practice, I saw GPs being driven out at the age of about 57 or 58. They had had no intention of retiring early, but they had been warned in their annual meeting with their accountant that, because of the taper, they would suddenly reach a high marginal tax rate of well over 50%, which naturally is not very attractive. The result, exactly as other hon. Members have laid out, is that we are losing the people with the most expertise—the people who train the new people.

It is important that we do not get carried away into thinking that the NHS is about machinery, buildings or gizmos and gadgets. Every one of those gizmos and gadgets is used by a person. It is people in the NHS who care for, treat and diagnose people. If we do not have the workforce, all the waiting times that we like to stand up and talk about will be completely shot. The workforce issues that all four UK nations face are being made worse by these problems.

Many people may think, “A £1 million pension pot allowance? What a great problem to have!” It is a great problem, but the difficulty is that in general practice, GPs reach a high salary quite early, unlike in a hospital where becoming a consultant takes 15 or 16 years, so people have taken out added years and bought extra service. Because we graduate late, it ends up being very difficult to work for 40 years and have a half-salary pension. We thought about buying added years—we looked at it twice, but we could never afford it.

It is the same issue that arose with the Women Against State Pension Inequality Campaign and with Hewlett Packard, Magnox and all the others: people are expected to commit to a pension in their early 20s, but when they get to the other end, the goalposts have moved. It hits them when they can do nothing about it but bail out—and that is what they are doing.

The lifetime tax allowance limit has already driven out consultants and GPs before the age of 60, but what makes the problem much more acute is the tapering annual tax allowance. As we have heard, it was introduced in 2010 at more than £250,000 to avert tax avoidance and gaming of the system. Senior medics in the NHS are probably the highest-paid people who do not run a business. They are on pay-as-you-earn, so they cannot play the game of writing off this, that and the other or paying themselves in weird ways; they just get their payslip, and the tax is taken. They are not in the tax avoidance game that was perhaps thought of when the taper was introduced. The commercial sector is defined contribution, not defined benefit; it is how the limits interact with the NHS, and probably other public service schemes, that causes the problem.

The annual allowance was reduced to £50,000 in 2011 and then to £40,000 in 2014. For those caught by the taper, the allowance can go right down to £10,000. The threshold is £110,000—not £150,000, which was the impression that the Chancellor gave at Treasury questions on 21 May. People hit a cliff edge, as hon. Members have highlighted: all of a sudden, they are caught in a system where they are taxed over and over on the same income. It particularly affects consultants, who are paid about £110,000 or more, and full-time GPs.

Those who have been caught out and hit by these bills are now talking to their colleagues. The result is that people are refusing promotion and refusing to take on the extra duties that are required in the NHS, such as becoming an education director, a manager of junior doctors or a clinical lead, because anything that could bring in extra income for extra work could suddenly push them over the threshold. Doctors cannot see in advance whether they will be hit, so they cannot manage things over the year.

Some of the bills that arrive have been absolutely horrendous. The average bill is £18,500, but many are getting towards £100,000. No one has that kind of amount lying around in their bank account, however much they are paid. Even trying to pay the bill has caused terrible problems. People are paying it either from already taxed income or by taking a loan on which they will have to pay interest—or they are using scheme pays, borrowing from their pension pot to pay off their bill and then having to pay the money back at non-commercial rates. That still reduces their final pension pot, because the money has technically not been in it for the same length of time.

[Sir Robert Syms]

A BMA consultant told me that an actuary has done some modelling and found that the penalties are so severe that somebody who works 48 hours a week and has to borrow money from their pot at the end will have a lower pension than someone who works 24 hours a week.

[Dr Whitford]

I thank the hon. Gentleman for securing the debate and for making that point. I have not seen that actuarial working, but it highlights how completely bonkers the scheme is. People are trying not to do anything extra; they are doing everything to stay below the threshold, because once they are over it, they get sucked into a Kafkaesque spiral that pulls them down to ridiculous levels.

Another problem for GPs in England is that they are not getting their pension statements because of issues with the system; I think Capita runs it at the moment, and we know how well it runs some of the other services that it has been asked to manage. Non-pensionable income is counted, which seems very weird for pension tax allowances. The notional growth in someone’s pension pot is also being counted as income. I am sorry, but income is income; it is what someone earns or receives, not what might be sitting in their pension pot for them to gain in 10 years. All these problems are catching doctors out, because they cannot see them. As they have begun to suffer, all they can do is ensure that they stay below the threshold.

The former junior Health Minister—the hon. Member for Winchester (Steve Brine), with whom I have spent many hours in this Chamber—highlighted the fact that 80% of people affected will change practice. That is leading people to refuse anything that will lift up their income—not only promotion and extra duties, but extra sessions. Many of those who are in their early to mid-50s are talking about retiring, which would be cataclysmic. The survey that he mentioned shows that some 30% are already considering doing so.

Between six and seven years ago, we were suddenly hit with a doubling of our pension contributions—from about 6% to about 14%—which meant that my take-home pay went down. Here we are, six or seven years later, being punished because our pension pots are too big. It is completely bizarre.

The problem is that we cannot afford for those who are affected to retire. Every time we discuss workforce, we talk about recruitment and retention. These people are the ones who will train the new recruits, and we need to hold on to them. As has been mentioned, the measure is not devolved but its impact is devolved in health. Only this place can sort out the pensions mess.

I am really disappointed that we do not have a Treasury Minister listening to this debate, and I hope that at some point we will have a debate to which a Treasury Minister responds. The Minister for Health, who is here today, will have to gather our comments and take them to the Treasury, and we would rather communicate directly with the Treasury. This issue has to be sorted, or there will be an absolute workforce meltdown within the next two years.

--- Later in debate ---

[Anneliese Dodds]

I certainly will, Mr Gray. Thank you.

As I was saying, this debate is broadly around the contours of the taxation system and how they affect high-paid workers in particular. I am sure that the hon. Member for Winchester is aware that Labour has a different approach from that of the current Government around progressive taxation. We set out our proposals at the last general education: we indicated how, by increasing the tax paid by the very best-paid workers, we would free up the resources that are necessary. I am sure that he has seen what Labour produced in that regard—in particular, we would not pay for the boost in spending that the NHS needs only through a short-term windfall, which in practice is what the Chancellor did, because all the commitments that the Government made to the NHS were as a result of lower than projected spending and higher than projected taxation receipts.

That is not a sustainable way to fund our NHS in the long run. Instead, we should look at the longer-term measures that are necessary, which is exactly what we have been doing.

We need to ensure that NHS workers on lower incomes can save properly for retirement, but we also need to look at the situation that has been the focus of today’s debate. We need to focus on the changes that were made in the 2015 pension scheme, and how they interact with the variety of alterations that have been made to tax release. It is especially important to do so in the context of staff retention, and I understand the comments that Members have made about that topic. We have a particular problem with NHS staff leaving their jobs early, which in my experience is not merely because of these issues, although of course they are important. When I talk to senior staff in the NHS, they also mention stress, a general lack of resource, having to deal with short-term changes such as operating theatres being closed because of a lack of staff, and so on. A whole variety of features is driving those retention problems.

[Dr Whitford]

I accept that there are many other issues, and obviously all four UK health systems are stretched because workforce is their No. 1 issue, but this problem comes on top of that. People who feel stretched—people who feel they have a terrible work-life balance, who are working late and so on—suddenly find that the extra sessions they do are costing them money. That is a final slap in the face.

[Anneliese Dodds]

I am aware of that; for many, this issue can be the straw that breaks the camel’s back, especially when it is not anticipated.

I hope that the Government will look carefully at the impact of threshold effects, particularly cliff edges that lead to radical changes in the amount of tax paid, which is a significant problem with the UK tax system generally. The situation for incurring VAT is analogous to this one: small businesses are deliberately staying below the threshold because as soon as they go over it, they have to start paying VAT—not necessarily at a very high rate, but with all the bureaucracy and so on that comes with it. This situation is very similar: there is that cliff edge, where tax treatment suddenly becomes very different from what it was before.

In the long run, Government should aspire to learn from the best of what happens in other countries that have a more granular approach; where income is more tightly tied— and sometimes entirely tied—to tax treatment, so that as one’s income goes up, tax liability goes up stepwise. That seems a very sensible approach, but of course, getting there is a long-term aspiration. In the short term, I hope that the Minister—who I know is an open-minded person—will ask his Treasury colleagues to sit down with the experts and representative organisations, and talk to them about how these problems arise because of the interaction of the complex pension system with the complex treatment of tax release, so that there can be some kind of short-term fix with a view to, in the long term, having a much more rational approach to tax release on pension contributions.

--- Later in debate ---

[Stephen Hammond]

Let me make it clear that not only are the changes having an impact, they are likely to continue to have an impact. I recognise that; the hon. Gentleman will hear later in my remarks that we recognise that point.

My hon. Friend the Member for Poole was right to talk about the long-term plan and the cash settlement that goes with it. He was also right, though, to mention that any plan will work only if it works: if we make sure the people delivering it can do so with the numbers and experience required. The hon. Member for Newport West (Ruth Jones), although she said she was not expecting to speak this morning, made a thoughtful speech and raised a number of issues from her direct experience that informed the debate.

My hon. Friend the Member for Winchester (Steve Brine) represents the place where I was born and spent my childhood, so for that and other reasons, I always listen carefully to what he says. He was right to stress at the start of his speech that this is not about tax breaks for particular people, although that is the headline; the reality is that perverse disincentives are being created against providing the care that we need. I listened carefully to the hon. Member for Glasgow North East (Mr Sweeney), who has just intervened on me to reiterate the point he made in his speech about the experiences of some consultants, and I recognise that those experiences are not unique to Glasgow North East.

The hon. Member for Central Ayrshire (Dr Whitford) always makes many informed remarks, given her experience. She made a point that perhaps has not been picked up, but is important in informing the debate: this is not just about losing a number of potential outpatient appointments and clinicians to service them, but about the impact on training. In many of the places that I have had the honour to visit as Health Minister, it is clear that the mentoring and support provided by senior staff to more junior staff is an important contribution, not only to the wellbeing of those junior staff, but to their education and, therefore, to the benefit of patients. That is undoubtedly one of the consequences of what we are talking about today.

[Dr Whitford]

Obviously, senior clinicians are critical to clinical teaching, which is part of the work. However, as other Members have highlighted, consultants are refusing to take on the extra sessions involved in organising that teaching and running rotas for either junior doctors or medical students. Without that, it will just be chaos.

[Stephen Hammond]

The hon. Lady is right to make that point; as I said in my remarks about her speech, I recognise the impact on training. There is clearly concern that unless we address this matter, it will have a number of impacts, of which that is one.

The hon. Member for Oxford East (Anneliese Dodds), speaking for the Opposition, rightly opened her remarks by pointing out the scale of the cost of tax release for pensions to the Treasury. She made valid points about doctors’ knowledge about that liability, and about the interaction of core tax principles with particular schemes. I was rather hoping that she would also welcome the long-term plan and the cash settlement, but I suspect that element of unity was probably a step too far.

As my hon. Friend the Member for Poole may have mentioned at the beginning of his speech, we have fewer Members here and a lower number of contributions. However, those contributions, combined with some of the interventions, have meant that we have had a debate of high quality.

Needless to say, I have heard the representations from everyone in the Chamber. It will not surprise anyone that I have received, as has the Department, representations from NHS employers reporting exactly what we have been discussing—that consultants are increasingly no longer willing to work additional sessions. The lost capacity is clearly difficult to replace, especially in some clinical areas where there are already shortages, and it can be expensive, as employers can pay a premium for locums to fill the gap. It is obvious and right that where there is evidence of an impact on the delivery of services, the Government should be prepared to take action.

At the outset, I reiterate that the Secretary of State and I take seriously the concerns of doctors. That is why we have been involved in a number of discussions with the Treasury, which has resulted in the 50:50 flexibility and the consultation. I will come to that in a moment, but, as Members will hear as I develop my remarks, that will not be the end of our conversation with other Departments.

Looking at the case for pension flexibility, it is true that outside public service, employers in some cases have flexibility to adjust benefit packages to allow high-earning employees to target a lower level of pension saving and so reduce the potential for large regular annual allowance tax charges. That flexibility is not currently present in the NHS. The NHS pension scheme does not allow any flexibility over the level of pension growth. Staff who participate in the scheme must pension all regular earnings from their employment. The Government are right to take the view that it is important to ensure that staff have a good level of pension savings, but senior clinicians, particularly consultants and GPs, have a unique degree of flexibility over their workloads and obviously can reduce their commitments. Consultants can reduce the number of additional sessions undertaken, and many GPs are self-employed. That can create incentives for clinicians to seek to control their income and pension growth by limiting or reducing their NHS work to avoid breaching their annual allowance. As a number of Members have discussed, that clearly has an impact on the delivery of patient care.

It is clear that retaining and maximising the contribution of our highly-skilled clinical workforce is crucial to the NHS and the long-term plan for the NHS. While any pension tax regime should seek to achieve the fiscal ambition of distributing pension saving incentives fairly, it has to be recognised that, in combination with the fixed structure of the NHS pension scheme, that could produce—listening to the evidence today and the evidence I have directly received—unintended consequences for service capacity and the delivery of patient care. The Government are prepared to change the rules to give clinicians more flexibility.

Alongside the publication of the “Interim NHS People Plan” earlier this month, my right hon. Friend the Secretary of State announced our intention to consult on new flexibility for clinicians. The consultation will be published in the coming days—I hope very shortly—and will set out proposals for a 50:50-style option, offering 50% pension accrual and halved contributions. Earlier this year, as part of the new five-year GP contract, the BMA and NHS England asked the Government to consider introducing that option. While I recognise that the BMA has not been unequivocal in its support, it has welcomed the proposal as a step in the right direction.

The Government believe that a 50:50 option balances the benefit of flexibility with the fiscal impact to the Exchequer. The 50:50 option will allow clinicians to build up their pensions more slowly and at a lower cost. Clinicians will still need to make their own personal assessment as to whether their financial interests are best served by taking advantage of the 50:50 model or continuing with full-rate accrual, but I have heard—not necessarily in the debate today, but directly from a number of consultants—that the 50:50 option is not flexible enough and that other measures should be considered.

The new pension flexibility should be viewed as a positive development for clinicians. My hon. Friend the Member for Winchester mentioned that he has asked me about the consultation period on the Floor of the House and that he has spoken to consultants about it. The consultation will be an opportunity to listen to a range of views before any final proposition is agreed. I encourage all Members here today to encourage their local clinicians to take part in that consultation. Equally, I encourage anyone from the health system in its widest context to take note of the debate and take part in the consultation. We want not only to hear any suggestion that there is a generic case for tax changes, but to listen carefully to what clinicians say using their own personal examples to provide evidence for any change they seek.

[Stephen Hammond]

The consultation is both. I recognise, as I said a few moments ago, that the 50:50 option has not received unequivocal support from the BMA, but to its great credit, it has asked us to consider that. We have come forward with this proposal. The BMA has welcomed it, but has said that it would want to discuss further options for flexibility and other pension matters. We have said that the consultation will look at the merits of the 50:50 option—or question it—but we will rightly open up that consultation to other suggestions. My hon. Friend will have just heard me say that I hope Members will encourage their local clinicians to use the consultation as a way of expressing their concerns about the 50:50, if they have any, and to express their views on other measures they would like to see introduced in terms of pension contributions. I stress that point again in response to his intervention. He will probably be interested in my next set of remarks, which are on flexibility.

Although the 50:50 option provides a new flexibility, we recognise that it does not provide unlimited flexibility for clinicians to target their own personalised level of pension growth and contributions. The financing model for the scheme means that any flexibility that reduces contribution income has an immediate fiscal impact on the Exchequer. The 50:50 option does not set aside the annual and lifetime allowance tax policies, but will give clinicians a new flexibility to manage their pension growth.

Where 50% accrual reduces pension growth by more than they wish, clinicians can use the contribution savings from the 50:50 model to buy additional pension to customise their own pension growth incrementally. Additional pension can be purchased in units of £250. That clearly adds some flexibility to their ability to manage their own contributions. However, some clinicians may continue to experience annual allowance tax changes, even with accrual rates reduced to 50%. For that group, while 50:50 reduces the charge, it does not eliminate it. We recognise that a number of individuals may wish to target a lower level of pensions growth. We will listen carefully to that suggestion through the consultation.

[Dr Whitford]

Is the Minister suggesting that senior consultants in three pension schemes sit and manage whether they are going to use the 50:50 or add in top-ups? That creates a whole job for people who work often 50 to 60 hours a week doing the thing that they are actually meant to do; it would give them almost a side job to try to manage their pension. Could we not go back to something simpler, whereby they get their payslip with a fair amount of pension tax taken off, but not what is happening at the moment?

[Stephen Hammond]

I have listened carefully to what the hon. Lady has just said, and she will want to listen to my next remarks, but I think she will reflect on the fact that a system of annual and lifetime allowances has been in place for some time. They were first introduced by the previous Government, although there have been some changes. Whether or not she thinks it would be better to have an even simpler system, some people will have recognised over time that it is important to look at their own pension contributions. Although tax relief on pensions is one of the most expensive reliefs, and the NHS pension scheme is rightly one of the better schemes available, I absolutely recognise that annual allowances and negative tax rates have a huge impact on some clinicians and consequently on the services for patients.

Consultants have raised with me the issue of the tapered annual allowance that Members have spoken about. I have been asked why the taper threshold is currently set at £110,000, which cuts across, as many people have pointed out, the typical earnings of an NHS consultant, although some people might perceive £100,000 as a high level of income. Unsurprisingly, tax policy is not something that I can speak to, but I have asked the Treasury and it advises that the threshold income test is designed to ensure that only those on the highest incomes can be affected by the annual taper. In the Treasury’s opinion, the £110,000 threshold balances the desire to restrict the annual allowance taper to those on the highest incomes, while trying to minimise the reduction in the value of the individual’s annual allowance.

I have also been asked why the annual allowance taper calculation takes into account both pensionable and non-pensionable earnings. Again, with the obvious proviso that I cannot design tax policy, the Treasury advises that if non-pensionable pay is excluded from the annual allowance taper calculation, there is the possibility that an unscrupulous employer could reclassify some pay as non-pensionable. To ensure fairness, the Treasury includes all sources of income in the taper calculation. However, hon. Members will not be surprised to hear that I think the concern about unscrupulous employers is not one that applies to the NHS. I recognise the issues raised by hon. Members on behalf of their consultants with regard to the taper threshold, and I am grateful to the Treasury for the discussions we have had, which have resulted in the 50:50 flexibility, but I can assure hon. Members that that discussion has not concluded. We rightly recognise that other pension issues need to be resolved.

I am grateful that the Treasury continues to engage with concerns about the taper threshold and how it impacts upon the workforce. I am happy to assure hon. Members that the Department intends to continue having discussions so that the matter can have a resolution that we hope will sort the matter out in an equitable and fair way, and not only for tax principles. We want to ensure that the dedicated staff working in the NHS feel valued and understand that they will not be penalised through the creation of perverse incentives so that they do not do what we want them to do, which is to provide excellent patient care.

In closing, I again thank my hon. Friend the Member for Poole for raising this important issue. I hope that I have been able to do three things: first, show hon. Members that the Department and I as the Minister responsible for people in the health system recognise the concerns raised by hon. Members on behalf of their consultants. The issues have also been raised with me directly. Secondly, I hope people will recognise that the 50:50 option is an important first step in looking at issues associated with lifetime contributions. I urge hon. Members to encourage their consultants to use the consultation. Thirdly, I recognise there are still issues around the taper threshold and the annual allowance, and I give the Chamber a commitment that the Department will continue to discuss with the Treasury ways in which we might be able to resolve those matters. I conclude by reiterating how important the debate has been this morning.