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Majority of full-time GPs to be hit with pension tax bills of up to £60,000

GPs face higher tax bills on their pensions after chancellor George Osborne announced in yesterday’s Budget that the lifetime allowance for tax-free pension savings was to be reduced from £1.25m to £1m.

The BMA warned lowering the cap on tax-free savings further would now put most full-time GPs in line for a hefty tax bill when they retire and mean they may be better off stopping contributions before they reach their original planned retirement age.

It comes after Pulse revealed many more GPs are already contemplating opting out of the NHS scheme because of changes meaning they have to work longer, until 67 or 68, or lose certain benefits.

The chancellor’s announcement was made as one of a range of measures to ensure ‘fairness’ in how society contributes to cutting the deficit.

The Budget documents state that the Government is ‘restricting the lifetime allowance for pensions tax relief to £1 million from April 2016 and indexing it by inflation from 2018 so that everyone contributes their fair share to reducing the deficit’.

According to accountants, the reduction in the lifetime allowance means the maximum tax-free lump sum GPs can take on retirement will go down from £163,043 to £130,435, and the maximum they will be able draw tax-free is going to fall from £54,348 to £43,478.

At the top end of the scale, a GP with a £1.5m pension pot could end up paying around £60,000 in tax over 20 years, or £3,000 a year.

Dr David Bailey, deputy chair of the BMA pensions committee, told Pulse the change was ‘going to bring in the vast majority of retiring GPs. It has a double significance for GPs because we pay the employers’ contributions as well as employee’.

He added: ‘People will be thinking seriously about whether they need to take fixed protection to maintain their lifetime allowance at the higher level before the new one comes in in 2016.’

Luke Bennett, partner at Francis Clark LLP, told Pulse GPs with pensions already worth more than £1m might be protected from the change and that the plan to increase the allowance with inflation from 2018 was ‘helpful’, but he agreed GPs reaching retirement would be likely to decide to leave the NHS scheme – leading to a rise in contributions.

Mr Bennett said: ‘Although the details haven’t yet been announced, I expect that it will give some relief for those GPs who have pension funds (NHS plus any private) worth more than £1m on 5 April 2016.

‘In my view the reduction in lifetime allowance is going to lead to more GPs deciding to stop paying into the NHS pension scheme prior to retirement, as they will be reluctant to build up pension benefits in excess of the lifetime allowance.’

He added: ‘If high earners stop paying in, and take their benefits early, the contributions needed from those remaining in the scheme will have to increase to cover the shortfall.’

Paul Samrah, a medical accountant with Kingston Smith, said GPs should check the value of their schemes.

He said: ‘It’s going to bring a lot more GPs into the “net” – they need to be very much aware of it, not just assume that they’re immune from it and that this only applies to private pensions. They should be checking the value of their scheme.’

Readers' comments (22)

  • The politicians have awarded themselves an 11% pay rise and protect their banker friends ( look at who Osborne was at school with ) with bailouts . The money comes from somewhere and they have stolen it from us . No matter how it is dressed up this is thievery . How blatant can you get . No OOH work for 2 months will be the first shot .

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  • How can it be fair to steal money that was earned before the banker induced crash ?

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  • Recruit and retain, how are you going to do that.One of the only benefits of training for and doing this ball breaking job was the pension,It looks like now that is off the table.No wonder we are all retiring or emigrating if we can.Anyone want to bet what success rate the next round of recruiting will have.Odd on it will be poorer than the last one.

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  • The aim is to drive out people and liquidate the NHSP Scheme. Politicians can't digest the idea of NHS staff having a scheme which probably could give them a deserved rest in old age. Why stop battering them till retirement - why not to their graves? And hence the constant changes to the Scheme to drive people out.
    I bet they already have a contingency plan and reserves to pay pensions to those getting them at present even if all GPs leave the scheme within the next 5 years. And then Georgie will give us a new lolly to suck before the elections - that is , if he hasn't availed of his pension or joined an American healthcare corpo.

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  • It wont just be GPs opting out of the pension scheme it will be GPs opting out of GPing.

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  • The budget also dropped the tax threshold of yearly pension pot rise from £50K to £40K which will encourage early retirements.

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  • Dear Young GPs, Poor your money into ISAs and the new help to buy ISA for your kids, buy the biggest house you can and keep extending it as its tax free lump sum when you down size.

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  • Isn't this an own goal as far as GPs are concerned? I can see the exodus of GPs in their late 50s becoming a stampede

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  • Buy gold

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  • Are they ever going to stop kicking us?

    I've seen 53 highly demanding patients today, admitted 5 patients, made numerous "life changing" interventions and I'm knackered.

    No way will I make it alive to 67 to see my devalued rubbishy pension. I'm 43.....

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  • When you consider a few years ago you could have 1.8 million lifetime allowance , then 1.5 then 1.25 it makes you realise how screwed the average gp will be .we stopped paying into the nhs pension scheme last year as my partner and I were up to 1.46 and 1.7 m each ! I got the personal protection at 1.5 thank god or I'd be facing a £110000 tax bill ! I am also retiring at 55 taking the maximum lump sum so should be ok as it will not go over my lifetime allowance set at 1.5M with the early retirement factor of 0.785 .Seriously get some good advice , who wants a massive tax bill just as you think you are going to be ok ? You can apply for the lifetime protection online .I did mine on my iPhone while in the jungles of Cambodia ! Thank god I did

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  • 7.28 pm - wish I could apply for protection. Unfortunately history would suggest that only those with a pot greater than 1million next year can apply for that perk. I.e.older gp s. Unfortunately it is the younger gp who keeps getting hit again and again. Older gp benefited from protection against recent pension scheme changes too. Seems so unfair.

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  • HOW MANY MORE hits will young GPs take? Can really understand why so many colleagues upped and left the country. Seems like it was the right thing to do now. How sad

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  • @ 8.12pm I don't blame the older generation. Hope they get out while they can still enoy life. They've done their time. However, it seems like age discrimination against the younger generation. This will help people make the decision to emigrate or change careers easier.

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  • I feel very sorry for the younger GPs. I am 18 months from my retirement. I am encouraging my young partner aged 30 to consider going to Australia. If we think reducing the LTA further is bad, just consider the possibility of having our current tax free lump sum at retirement being taxed at our marginal rate - nothing is impossible with Labour or Conservative. For this reason am considering drawing my pension this year rather than next year.

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  • The pension 'reforms' are a symptom of the population dynamics. I feel the viability of the scheme is in trouble long term. It is making less sense for the younger generation to pay in. Government is trading insolvent (still) and will change the rules at will. Can't rely on UK plc to bail out doctors despite them having paid in all their lives. The NHS pension scheme scheme could collapse like a house built on foundations of sand.

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  • 8.55 so theft becomes legal when dressed in "necessity".

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  • I am sorry, as a newly qualified GP , I am going to advise against anybody becoming a doctor in the UK, leave alone GP.
    Treat professionals like dirt and you know where you will all end up..they work so hard and this is what you do to them.
    look at the irony here- docors/ healthcare improved life expectancy and due to people living longer, doctors have to be robbed off their own lifetime savings....
    sorry UK, you are going to be a third world country within a decade..

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  • @ 10.41am

    Its wrong. Plain and simple. Money should have been put aside. Its pension fraud surely.

    A Judicial Review to challenge maybe if someone has the resources to to take it on.

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  • Almost all IFAs think it is a great deal compared to private pensions, so they recommend staying in the scheme.

    It is a good deal still if the government doesn't rob the scheme continuously for the next 30 years until younger GPs retire, which we know they will continue to do, and if you end up living to 80+.

    I paid in as a GP 14% and rising, plus employers contributions now lost in global sums meaning 30% in NI contributions, with tax free contributions gone for 1st 10%, and tax on contributions and now lifetime allowances.

    Then work us into the ground so we can never collect our pensions - fiction would never be this bad.

    If you are on the lower end of life expectancy and continue to pay in until the new retirement age 68+ and rising, you will never get your payments back let alone benefit from the scheme.

    Get out while you can and spend and enjoy, or just work less now.

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