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Fewer NHS pension opt-outs due to tax rules since Spring Budget reforms

Fewer NHS pension opt-outs due to tax rules since Spring Budget reforms

The number of NHS staff members opting out of their pension scheme due to lifetime or annual allowance tax reasons has almost halved following changes in the Spring Budget, according to new data analysis.

Financial mutual Wesleyan obtained data via a freedom of information request to NHS Business Services Authority (NHSBSA) which showed that 46% fewer individuals opted out of the scheme for these reasons between April and June 2023 compared to the same period in 2022. 

Chancellor Jeremy Hunt abolished the lifetime allowance and increased the annual allowance from £40,000 to £60,000 in April this year, in a bid to retain GPs and other doctors.

Mr Hunt, in his previous role as chair of the House of Commons Health and Social Care Committee, had said it was a ‘national scandal’ that GPs were having to work less or leave jobs altogether due to NHS pension rules. 

The lifetime allowance (LTA) was the maximum amount you could put into a pension pot without triggering an extra tax change, meaning if a pension pot exceeded it, this money was taxed heavily when you retire. 

The annual allowance (AA) is the limit you can contribute to your pension pot every year while still qualifying for tax relief – beyond this limit, the money will be added to your taxable income. 

The Spring Budget reforms were broadly welcomed by the medical profession, with the BMA’s pensions committee chair Dr Vish Sharma saying that scrapping the LTA would be ‘potentially transformative for the NHS’. 

The BMA had previously been vocal on the lifetime allowance, warning that it forces senior doctors to leave their NHS roles early. 

Head of medical at Wesleyan Alec Collie said the figures obtained from NHSBSA are ‘an early indication that the Spring Budget tax changes are alleviating some of the tax pressures that are impacting doctors and dentists’.

He said: ‘However, this isn’t a magic wand, and problems persist. Those who received unexpected tax bills and left the NHSPS won’t all be rushing to re-join the scheme unless they see evidence that the new limits aren’t just going to result in the same issues.

‘We’re urging anyone now thinking about re-joining the NHSPS, or worried about their pension or tax situation, to seek professional advice. This is still a very complex area, with different implications for different circumstances.’

PeriodTotal number opting outTotal number citing ‘Lifetime Allowance/ Annual Allowance’ as reason
April – June 2019 32,069 1,247
April – June 202013,165642
April – June 202111,3561,135
April – June 202220,0241,133
April – June 202314,756613
Analysis of NHS Business Services Authority figures by Wesleyan

Wesleyan said the drop in the 2020 period may have been caused by the emergency measures introduced at the start of the pandemic which meant the Government effectively paid incurred tax bills to support the NHS workforce. 

They also said the annual allowance taper thresholds were increased in March 2020, which could have influenced the number of opt-outs for this reason.

While the data show a reduction between 2022 and 2023 in the number of people citing LTA or AA as their reason for opting out, for the 2023 period there was also a significant increase in the number of people responding with ‘prefer not to say’.

Deborah Wood, chairman of the Association of Independent Specialist Medical Accountants (AISMA), told Pulse this sudden increase could be distorting the data. 

As such, she said it is not ‘conclusive’, but that it is ‘indicative’ that of those who are willing to list the LTA or AA as a reason, there are fewer citing this since April 2023 than before.

Ms Wood said: ‘But I think in general the reasons for opting out will be much more complicated than whether they have to pay an annual allowance or potential lifetime allowance charge, because so many other things have been happening around this time. 

‘We’ve had the compulsory move into the 2015 scheme which will have had an impact. We’ve had this change in the timing for CPI pension uplifts which will have had an impact.

‘Pensionable earnings for practitioners have started to fall due to increased practice costs, so they’re not going to be as impacted by pension taxes. Also the tiered rate change in October 2022 – it’s not costing them as much to be in the pension scheme, so they may be happier to stay in.’

Following the Spring Budget this year, the Labour Party announced it would reverse plans to abolish the pensions LTA if they were voted into Government, and instead favour a targeted approach for doctors.

The NHS long-term workforce plan, published in June, committed to modernising the NHS Pension Scheme, in line with the Spring Budget, in order to retain doctors and other staff members. 

However, GP leaders called the Government and NHS England out on their lack of concrete plans to retain existing GPs.