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Pension tax changes ‘coincide’ with spike in early retirements, says minister

The change to pension tax allowances ‘coincides’ with the growing number of GPs retiring early, a minister has said. 

Health minister Stephen Hammond admitted last week that pension tax ‘may be a factor in doctors deciding to retire early or limit their NHS commitments’. 

It follows news that health secretary Matt Hancock was in discussions with the Treasury over changing the tax treatment of pensions due to its effect on GP retention. 

GP leaders have previously warned that the changes to the allowance have caused serious damage to both recruitment and retention within the profession. 

Under the current NHS pension scheme, an annual allowance worth £40,000 limits the amount of money that can go into the pot each year before incurring tax penalties.

GPs have been hit with charges, which has seen many limit the number of sessions they do towards the end of the financial year.

Labour/Co-operative MP Alex Norris asked Mr Hammond whether the Government had made ‘an assessment of the effect of the annual and lifetime allowance taxation rules on rates of early retirement among doctors’.

In response, Mr Hammond said the increase in the number of GPs and hospital doctors part of the 1995 pension scheme retiring early ‘coincides with reductions in pension tax allowances’.

According to data provided by Mr Hammond, 4,593 GPs decided to take an early retirement between 2011 and 2018 – compared with 2,969 hospital doctors over the same period. The new tapered annual allowance was introduced from 2016.

Mr Hammond said: ‘Whilst the scheme does not require individuals to give reasons for claiming their pension, the rise in voluntary early retirement rates coincides with reductions in pension tax allowances over the same period. The annual and lifetime allowances limit the amount by which an individual can grow their pension tax-free each year and in total.

‘There is emerging evidence that pension tax may be a factor in doctors deciding to retire early or limit their NHS commitments. There are of course other factors, such as workload.’

GP leaders previously warned that the annual allowance and concerns over large tax bills have caused serious damages to recruitment and retention, with doctors either reducing their hours or taking early retirement as a result.

In January, Pulse revealed that health secretary Matt Hancock was in discussions with the Treasury over changing the tax treatment of pensions due to the effect on GP retention, saying it is the ‘biggest concern’ GPs raise with him

Mr Hammond added that the Government is ‘alive to the issues raised by senior clinicians, and keeps the impact of public sector pay and pensions policies under constant review, taking account of total reward and fiscal considerations’.

Dr Charlotte Alexander, a GP in Surrey, said current rules around tax allowances have become a ‘trap’ for GPs and consultants, preventing them from undertaking extra work.

She said: ‘Essentially, the pension scheme has become a trap for GPs and consultants and it’s preventing us from taking on extra work. It’s making people pay now for what they may never have in the future and it’s having an impact on people’s work – it’s like tying our hands.

‘Even if you’re keen, want to help out and want to be paid the fair wage but also be able to put into the pension, because of the injustice of it you don’t do it as you don’t see why you should have to pay to go to work. Eventually, doctors may find different ways, which will often probably be more and more in the private sector.’

It emerged this month that there has been a ‘sharp rise’ in the number of GPs seeking pension advice, with some GPs facing personal bills of up to £50,000.

This came after research from Royal London revealed that doctors have resorted to a ‘hokey cokey’ approach to mitigate tax issues.

Number of hospital doctors and GPs claiming their NHS pension on a voluntary early retirement basis from the 1995 scheme

Scheme Year Hospital Doctors GPs

2011-12

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315

513

2012-13

387

591

2013-14

406

746

2014-15

453

739

2015-16

494

695

2016-17

490

721

2017-18

424

588

Source: Stephen Hammond