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.
This looks helpful.
The indemnity and now pensions were perverse incentives not to work harder / longer.
Unless there is some catch I have not understood, this should now mean a GP (or consultant) can take on extra work and be confident it will actually equal more money, rather than “salary cap”.
I really hope this will help hospitals tackle the waiting lists – I’m sure we are all deluged with requests from long suffering patients to chase the hospital on their behalf.
Next requests:
Make appraisal optional over 50?
Do something better with “referral management”
Mmmm, but the job as it stands is simply too terrible for this to make any meaningful impact on retention
More importantly, for doctors and nearly everyone living in the existential cost-of-living crisis, perhaps he should have increased (by a lot) the Tax-free Personal Allowance; this would have been a great boost to many workers (including doctors) and to the UK economy. However, he has chosen to think about the top 1% earners, and not only doctors but also the much higher earning Riche Sanuks in this world, by making the Lifetime Allowance totally ceiling-less. Daft Chancellor. Also, by not making an increase to your Tax-free Personal Allowance for the next few years, many more people will be dragged into paying more tax, doctors and patients alike, which makes this a not so smart budget. Surely, increase the Tax-free Personal Allowance for the real workers (including doctors, nurses, paramedics, teachers and many more), not just for the nouveau Riche Sanuks who increase the energy they use for heating their huge private swimming pools, while the rest of us have to carefully scrimp our energy use.
What is the difference between ‘removed’ and ‘abolished altogether’, and why do they not happen co-incident in time?
1 requires passage through parliament
2 Tax free lump sum capped for all apart from those with protection
Too late for this now retired GP.
The NHS has lost my 40 years plus experience for good.
What provision if any will be made for those GPs who were forced to retire early and pay a LTA Allowance penalty for the next 20 years. Will they now pay this back? I would doubt it very much
This is likely to be too late for me I’m afraid. I retired in 2019 at age 60 because I’d hit the buffers on the NHS Pension Scheme 1995 section. I ended up exceeding the lifetime allowance because NHSBA misadministered my GP pension by not paying in 6 years of my contributions to NHS Pensions until I queried it a year before I retired. I now have a £2000 yearly tax penalty for life through no fault of my own. Unless the Chancellor makes the removal of the lifetime allowance retrospective and removes the penalties there will be no benefit in my considering returning to paid employment.
Ditto John, gutted, we are Osborne’s children, likely disadvantaged in perpetuity.
too late
when the judges realised this affected them, and started to threaten to throw their toys out of the pram, it was dealt with very quickly.
when senior doctors – both in and out of hospitals – decided to reduce their hours for the same reason, they were ignored.
now that a lot of senior doctors have reduced their hours, the ex health secretary has suddenly woken up !
too late – the senior doctors now realise there is life outside the hamster wheel of the nhs, and have started to enjoy their extra, well earned, time off.
i shall be astounded if many of them will now get back on the hamster wheel because of this announcement !!
I don’t trust this government. I think the plan is to make you pay more into a pension which you will not know how much you have, give you an impossible & stressful job to ensure the GP dies early and his/her extra payments go back to the government. Unless they lower the taxes and I actually see the money, sorry, no.
At last. But too late for many. I’m still retiring early in June. Nothing would make me continue in the job which I once loved but now find too terrible
Who knows what Labour would do? Wes Streeting, Torygraph last September.
“I’m not pretending that doing away with the cap is a particularly progressive move […] But it is one that sees patients seen faster, and will inevitably save lives. I’m just being hard headed and pragmatic about this.”
Difficult to trust a word they say.
It is a 1-2 year window of opportunity to avoid an unfair tax. May not survive far beyond the election in its current form. The tax on these supposedly ‘excessive’ contributions was not saved, it was deferred. The income from pension above the LTA was more likely to be taxed at higher rate.
Preventing tax avoidance such as the top 0.5%-1% earners from using share options to reduce tax bills (capital gains vs income tax) would have been more equitable. The calculations of tax revenues are less widely broadcast.
I agree with many of my colleagues. I was caught at the age of 59 as well and have a tax penalty for a number of years against my pension. I may well have continued working if circumstances were different. We really do have a lot to blame the last few years government on. I probably would return if the penalties were repealed but there seems fat chance of that. Is this something the BMA can take up?
What confidence can my colleagues have that things will continue with the next party’s stated ambition. Pile the cash in and get out seems to be the only logical response if you are of an age.
This budget may not be as good as it first seems Because the tax free lump sum has been fixed at current levels it means that future pension claims will effectively mean you can claim less than a 25 percent lump sum on your pension pot total. The increased monthly drawings will be taxed as per normal income tax levels and because your monthly drawings will.be higher you will end up paying more income tax . The more you save,the more income tax you will pay ! Its as simple as that.
Advice, do your sums and do not be fooled into believing this is a brilliant deal,because unless you are well over the current LTA, the tax advantages are not so great,as you may think they are.
Dr B Thompson (Retired)
Well Done to the BMA pensions team for getting the above this far.
No advantage for those on low income/current GPs but Annual Allowance from £40,000 to £60,000 helps.
The lifetime allowance abolishment is almost purely for the super-rich and it is clear it has made a lot of accountants for the wealthy very happy. It would be simpler to increase to £3m (double current) rather than a policy for the richest 1% of the country
As soon as labour get in, they’ll abolish it.
Move along people, nothing to see here.