NHS pension dispute

There have been lots of changes made already since the appointment of Boris Johnson as Prime Minister in July, including proposing a plan to allow doctors and nurses flexibility with their pension contributions. The plan is designed to avoid breaching the annual tax-free allowance and receiving large tax bills at the end of the financial year.

Following the NHS pension ‘tax trap,’ some senior healthcare professionals have stopped taking on additional shifts to avoid being hit with excessive tax bills. After the announcement of the new government initiative, Health Secretary, Matt Hancock, stated that the plan will guarantee that doctors and nurses will benefit from any extra shifts that they take on to help patients.

How will the change affect me?

The plan set to be implemented in the new financial year will include the option of reducing or eliminating pension contributions from their salary, enabling healthcare professionals to stay under the tax relief threshold. This will also allow doctors and nurses to be given contributions that their employer would have made to their pensions, boosting monthly wages by a considerable amount.

How does the current ‘tapered annual allowance’ work?

The ‘tapered annual allowance’ involves those with an ‘adjusted income’ over £150,000. An ‘adjusted income’ is all income plus pension contributions, bonuses, and additional sources of income (e.g. landlord income).

The tapering shrinks the limit of pension tax relief from £40,000 to £10,000 a year, meaning for every £2 of adjusted income over £150,000, the annual allowance is reduced by £1 to a limit of £10,000. A full case study example by the NHS can be found here.

But with the complexity of the rules around the tapering it means that healthcare professionals with earnings of £110,000 a year or more are also liable to a large tax bill*. More information on how the current system works can be found here.

When will this plan be put into action?

Now that the plan has been published it will be reviewed during a consultation period in government with implementation arriving in April 2020, ready for the new financial year. The NHS will publish further guidance on this following the consultation period.

Where will this change take affect?

The plan is currently only to be implemented in England and Wales. With Scotland and Northern Ireland’s ministers deciding on their changes separately as their pension schemes operate in a different format to the rest of the UK.

What will the changes mean for healthcare professionals?

Ministers hope that the proposed changes will help alleviate the pressure currently on hospitals across the UK, with some doctors and nurses feeling relieved that they can work extra shifts without being penalised by the tax threshold. Health Secretary Matt Hancock added “NHS doctors do extraordinary life-saving work every day – they should not have to worry about the tax impacts if they choose to go the extra mile by taking on additional work to help patients.”

Lobbying from the British Medical Association and pressure from the Shadow Health Secretary Jonathan Ashworth, ministers are urged to do more to address the existing staff shortages. Further changes to the NHS staff retention could arise in the first few months into Boris Johnson’s tenure as Prime Minister and the lead up to Brexit.

Has the tapered annual allowance affected you? What do you think of the proposed changes? let us know here.

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* Information sourced from gov.uk as of 22/08/2019