Freezing the pension lifetime allowance could lead to a ‘catastrophic exacerbation’ of NHS workforce shortages, the BMA has warned.
It comes after The Times reported that chancellor Rishi Sunak is considering freezing the lifetime allowance in his budget on Wednesday 3 March.
The lifetime allowance is the maximum amount you can put into a pension pot without triggering an extra tax charge. If a pension pot exceeds the allowance, it is then taxed heavily when you retire.
If it is taken as income, it will incur an extra 25% charge, and if taken as a lump sum, then it will be 55%.
The chancellor is reportedly considering freezing this allowance at its current level – £1,073,100 – in order to raise more tax.
The allowance was linked to inflation and was expected to increase by 0.5%, or by £5,800, in 2021/22.
The freeze could mean about 10,000 people with larger pensions would pay more than £22,000 extra in tax by 2024, according to The Times.
The BMA warned this change could lead to doctors reducing their hours or retiring early, which would exacerbate pressures on an already stretched workforce.
In a letter to the chancellor and health secretary Matt Hancock, calling for an urgent meeting on the matter, the BMA said: ‘Because of chronic and historic understaffing in the NHS, no doubt worsened by the impact of Covid-19, many healthcare workers are currently working significantly above and beyond their expected hours.
‘This situation will clearly continue as the NHS now looks to reduce the significant backlog which has arisen due the pandemic. We are gravely concerned that even with current pension taxation legislation and existing indexed lifetime allowance this is already a potent driver towards less than full time working and early retirement.
‘Any further detriment to the lifetime allowance, such as that reported in the media, could lead to a catastrophic exacerbation of this already precarious workforce situation.’
The letter states that a BMA member survey found that 31% of GP and hospital doctors reduced their hours in 2019 solely due to pension tax charges, and 57% were considering retiring early.
Last year, official figures showed the number of fully-qualified full-time-equivalent GPs dropped by 651.
It comes after the Government rejected calls to reform GP pensions taxation, arguing the problem had already been addressed.