Chancellor Jeremy Hunt will abolish the pensions Lifetime Allowance in a bid to retain GPs and other doctors, he announced as part of today’s Spring Budget.
He said this formed part of a ‘comprehensive plan to help people extend their working lives’.
He announced that:
- The Lifetime Allowance charge will be removed before being abolished altogether, ‘removing barriers to remaining in work and simplifying the tax system by taking thousands out of the complexity of pension tax.’
- The Annual Allowance will be increased from £40,000 to £60,000, in order to ‘incentivise highly-skilled workers to remain in the labour market.’
He said that as a result of the pensions tax measures announced today, an estimated 80% of NHS doctors will not receive a tax charge with respect to accruals under the 2015 NHS career average scheme.
Speaking in the House of Commons this afternoon, Mr Hunt said: ‘I have listened to the concerns of many senior NHS clinicians who say unpredictable pension tax changes are making them leave the NHS just when they are needed the most.
‘The NHS is our biggest employer and we will shortly publish a long-term workforce plan that I promised in the autumn statement – but ahead of that I don’t want any doctor to retire early because of the way pension taxes work.
‘No one should be pushed out of the workforce for tax reasons. I will go forward an abolish the lifetime allowance, it is a pension tax reform that will stop over 80 per cent of NHS doctors from receiving a tax charge.’
The Government said that millions will benefit from the change, including those working in the public sector, with a particular focus on doctors, who chose to ‘retire early’ or ‘reduced hours for pension tax reasons.’
GP accountant Deborah Wood, who chairs AISMA, welcomed the change, which she said could mean more GPs will consider remaining in the NHS.
She told Pulse: ‘Combined with the other recent flexibilities introduced to the NHS pension scheme this should mean that more GPs and consultants will consider continued NHS service rather than earlier retirement.’
Speaking on behalf of the AISMA, accountant Andrew Pow said: ‘While some high earning GPs will continue to be impacted by annual allowance charges, the changes announced in the Budget mean that the vast majority of GPs will no longer be affected.
‘The changes will also ensure that in most cases, mid-career hospital consultants will not be impacted by annual allowance charges. That said, large pay increments above inflation may still lead to charges but at significantly lower levels.
‘The abolition of the lifetime allowance, which means the lifetime value of pensions can grow without additional tax charges, may result in more GPs and consultants considering continued NHS service rather than taking early retirement.’
The chair of the BMA pensions committee, Dr Vishal Sharma, said that scrapping of the lifetime allowance will be ‘potentially transformative’ for the NHS, as senior doctors will no longer be forced to retire early and can continue to work within the NHS.
He said: ‘The rise in the annual allowance will mean far fewer doctors will receive large punitive pension tax bills and will significantly reduce the perverse incentive to reduce hours due to pension tax.
‘However, the changes don’t address all of the issues and some doctors will still be adversely impacted by the annual allowance and in particular by the tapered annual allowance which hasn’t been meaningfully modified in these reforms.
‘Consequently, a minority of doctors will still need to navigate the complexity of the annual allowance, an allowance which we believe is completely unsuited to defined benefits schemes such as the NHS.
‘This will mean some doctors will still need to think carefully before taking on additional shifts or doing overtime. We hope to continue our constructive discussions with Treasury in order to find a way forward to address this outstanding issue.’
Spring Budget pension reforms
- The government will increase the Annual Allowance from £40,000 to £60,000 from 6 April 2023. Individuals will continue to be able to carry forward unused Annual Allowances from the 3 previous tax years.
- The government will increase the Money Purchase Annual Allowance from £4,000 to £10,000 and the minimum Tapered Annual Allowance from £4,000 to £10,000 from 6 April 2023.
- The adjusted income threshold for the Tapered Annual Allowance will also be increased from £240,000 to £260,000 from 6 April 2023.
- The government will also remove the Lifetime Allowance charge from 6 April 2023, before fully abolishing the Lifetime Allowance in a future Finance Bill.
- The maximum Pension Commencement Lump Sum for those without protections will be retained at its current level of £268,275 and will be frozen thereafter.
- Open and closed public service pension schemes for a given workforce will be considered linked for the purposes of calculating Annual Allowance charges, thus allowing members to offset any negative real growth for Annual Allowance purposes in legacy public service pension schemes against the Annual Allowance. This will be legislated for through secondary legislation and will apply from April 2023 tax year.
Nick Nesbitt, partner and head of medical financial planning at Mazars Accountants, said: ‘It’s a good news day for doctors and GPs. In a matter of minutes, Jeremy Hunt has written off two of the key drivers behind the mass exodus of GPs, doctors, surgeons, and consultants from the medical workforce.
‘Abolishing Lifetime Allowance, and at the same time hiking the Annual Allowance to £60,000, removes almost all NHS scheme members from pension allowance tax charges.
‘Now only the very highest earners will need to be aware of the thresholds. Whilst the chancellor has not abolished the tapering of the Annual Allowance for the highest earners, further increases to the level at which such tapering applies will remove more doctors from risk of tapering.’
Nuffield Trust Senior Policy Analyst Sally Gainsbury said that after today’s announcement the NHS has been left with ‘an unrealistic budget’ for the year ahead.
She said: ‘Abolishing the lifetime cap on pensions is a broad measure and isn’t NHS targeted. It will likely address the concerns of some senior clinicians but this one measure alone does not address the significant concerns over pay and working conditions of the majority of staff which is fuelling damaging strikes across the sector.
‘The NHS has been left with little certainty over how it will meet growing demand or address a workforce in crisis.
‘The Chancellor made this a budget about boosting the workforce across the economy, but the lack of the long-promised fully funded workforce plan for the NHS continues to delay meaningful action.’
It comes as the Department of Health and Social Care launched a consultation on a draft statutory instrument which will make changes to NHS Pension Schemes Regulations, to facilitate the retrospective part of the McCloud remedy.