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Pulse 2019 review: The year pensions and taxation became quite interesting



Rarely have pensions caused such passion in so many, but the ongoing crisis around the taxation of pensions has arguably been the biggest issue in general practice this year.

It had been becoming apparent over the past few years that GPs and consultants were badly affected by former chancellor George Osborne’s decision to lower the thresholds at which people had to pay tax on their pensions contributions.

Under Mr Osborne’s changes, people would start to be charged income tax if they increased the value of their pensions by £40,000 in a single year, or the total value of their pensions exceeded £1.05million.

This disproportionately affected higher earners in the NHS pensions scheme. But this wasn’t just a tax on the rich. Mr Osborne also introduced a ‘taper’ – which meant that your pensions tax-free ‘allowance’ reduced the more you earned overall.

This had the ridiculous effect of discouraging GPs and consultants to earn more money, as they were being caught in the pensions tax trap – even if they stopped contributing to their pensions. This year, everything hit the fan, as the reforms were introduced in 2016, which also allowed people to ‘carry over’ three years allowance.

Those three years have passed and now GPs and consultants have found they are losing money by taking on more shifts, so they have rightly said that’s them done for the year.

In his defence, health secretary Matt Hancock has been well aware of this problem. He exclusively revealed to Pulse in February that he was in talks with the Treasury about reforming pensions taxation.

Things have moved slowly since, but in November Mr Hancock came out in support of proposals from NHS England to pay all pension tax charges for 2019-20. So, GPs are free to work extra shifts this tax year, safe in the knowledge they won’t be liable for charges.

At the time of publishing, the details for GPs were still being ironed out, but it had been confirmed that GPs would use ‘scheme pays’. Under that arrangement, tax charges are normally deferred until a GP retires, but the changes mean that NHS England will now pay that deferred amount, meaning it won’t be deducted from GPs’ final pension.

These changes can’t come a moment too soon but don’t go far enough, according to the BMA. It has warned the government that wider pension tax reforms must happen immediately to reduce pressures on GPs.

The BMA council’s chair Dr Chaand Nagpaul said: ‘We are absolutely clear that the only way to solve the problem is immediate and fundamental taxation reform.

‘This means removing the taper and annual allowance for defined benefit schemes such as the NHS Pension Scheme, which will work for doctors regardless of whether they are treating families in the NHS, training the next generation of much needed doctors in universities, or supporting our armed forces in the field.’

The Conservative manifesto included a line that they will be looking for a permanent reform to the problem.

You can understand widespread scepticism, given the whole Capita debacle – and the rather dubious timing of these promises just ahead of the general election.

Now the post-election dust is beginning to settle, it’s likely that any pension tax changes will be viewed as just another poisoned chalice.