The health secretary has urged doctors not to take steps to retire early yet as he is committed to solving pension tax issues by the ‘new financial year’.
It comes after the Government announced a review to make pensions ‘more flexible’ for GPs in a bid to address retention issues.
Health secretary Matt Hancock told the Health and Social Care Committee yesterday that he regards the pension tax issue as ‘very serious’ and an ‘urgent priority’ that has to be solved ‘as soon as possible’.
Doctors should ‘take no precept of action in terms of early retirement’ because the issues will be fixed soon, he said.
He revealed that the upcoming consultation on the proposals to make pensions flexible will include ‘open questions’ to allow respondents to share their ideas on how to best tackle the problems.
The Government is proposing to allow doctors to halve their contributions – to reduce their pension growth by 50%, thereby avoiding tax charges.
Under the current NHS pension scheme, there is no flexibility in the amount of money NHS employees contribute towards their pension – with the highest earners required to pay at least 14.5% of their salary.
The annual cap on how much pension pots are allowed to increase by, tax-free, has been set at £40,000 since 2016. At the same time, new rules were brought in reducing the amount of tax-free pension benefits that can be accrued over a lifetime – from £1.25m to £1m.
Mr Hancock said he is committed to fixing the problems surrounding pensions by April 2020.
He said: ‘I regard [the pension] issue as very serious. I think there’s a significant problem, which is an unintended consequence of the different tax changes and its interaction with the NHS pension scheme.
‘The interaction between the pensions tax regime and the NHS pension is very complicated but I’m absolutely determined to solve the problem. This is an urgent priority that we are taking forward.’
He added: ‘We’re committed to resolving it by the new financial year. For people that are affected by the lifetime allowance, I would strongly recommend they take no precept of action in terms of early retirement because we’re going to fix this problem. For people who are affected by the annual allowance I understand the problem but we still do need we make sure we find solutions urgently so that people can do the work they want to do and that the NHS needs them to do.’
‘The 50:50 proposal would go somewhere to solving some of the problems. The BMA makes the case that it doesn’t solve all the problems, I’ve heard that case.
‘The consultation will include open questions as to how best to solve this problem so everybody will be able to respond to the details we put out explaining how they think best to solve the problem but we’re just working on the final details of that following the meeting with the BMA yesterday.’
‘We’re trying to fix this problem and we understand the interactions and we’re going to try and fix them as soon as possible,’ he said.
Health and Social Care Committee chair Dr Sarah Wollaston said she is aware of a number of GPs who have faced delays in getting updated information about their pension pot from Primary Care Support England – run by Capita – , which has resulted in ‘many young doctors refusing to take on extra hours’ because they do not know how liable they will be in the future.
In response, Mr Hancock said he has not heard of such issues but argued that in many cases concerns are based on rumours.
He said: ‘In many cases people raise concerns that are not fully founded. I’ve looked into a number of cases where the problem for an individual is not nearly as big as they worry about.
‘For instance, I’ve seen cases where people have said they have been faced with a very large upfront total tax bill but we have already changed the rules to ensure people do not have to pay cash tax bills upfront and instead can ensure that it’s swallowed within a rising pension pot. So there are a number of areas where people are understandably concerned because they’ve heard rumours and rumours are much worse than reality.’
Mr Hancock added he will make sure individuals can access up-to-date information about their pension.
He said: ‘I will fix the substance but I also want to provide people with the reassurance that in many many cases doing extra work does increase their total remuneration and the problem isn’t nearly as big as is feared.
‘Getting the facts out there so we can reassure people but also so that people get the up-to-date information as fast as possible about what the actual impact on their total pay is I think is only fair.’
Previous pension warnings
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.
Maximise your practice's financial potential and compare your performance with peers with Pulse Intelligence. Register for a 30 day free trial.