A radical solution for NHS pensions
We’ve had an ‘interesting’ morning getting our heads around pensions and the Government’s suggestions today.
First, I’d say it is good that ministers are acknowledging something needs to be done. The current situation – whereby GPs and consultants are having to cut hours to avoid big tax penalties - is ridiculous for GPs, consultants, ministers and patients.
The reforms aren’t perfect. It seems that there will still be uncertainty for GPs unsure whether they will hit their limits. The proposals explain the Treasury is looking into the tapered allowance that is causing more problems and uncertainty, but no more than that. But at least they are taking some action.
However, I feel what we need more than anything is complete honesty from ministers. The fact is the Government can’t afford the NHS Pensions Scheme. It is basically a Ponzi scheme that relies on future generations continuing to pay in ad infinitum.
But allowing all doctors to get to this limit at their own pace, with no threat of a tax charge removes the uncertainty and doesn’t punish doctors for increasing hours
The Government’s solution to this has been to use a punitive tax system to try and limit NHS pensions, and this is not the purpose of the tax system. I truly believe that the main reason the limit on lifetime pensions tax allowance (£1.055m – with anything contributed above that being hit with a 55% tax charge) was brought in was to impose a de facto limit on NHS pensions. True, they receive taxation from other high earners, but I’d say this is of minimal consequence when compared with the potential liabilities from the NHS Pensions Scheme.
So here is my radical suggestion. Why not just bring in a real limit on NHS pensions at £1.055m, adjusted every year for inflation, without using the punitive tax system? That is, doctors are told at the end of the tax year that their pension pot is full, and there is no point in putting more in. To illustrate this, with a limit of £1.055m on the 1995 scheme, GPs would be eligible for a pension worth £45,870 and a tax-free lump sum of £137,610.
If doctors want higher pensions, then they can use a private pension (which will cost the Treasury nothing). How this is done in reality, I don’t know, and I am sure there would be a number of technical problems.
But allowing all doctors to get to this limit at their own pace, with no threat of a tax charge – either annual or lifetime - removes the uncertainty and doesn’t punish doctors for increasing hours. Which is what we should all be aiming for.
Jaimie Kaffash is editor of Pulse. Follow him on Twitter @jkaffash or email him at email@example.com