The reward for toeing the NHSBSA pension line? Being stung for more tax

The McCloud remedy left many GPs facing surprise tax bills for simply staying in the NHS scheme. Medical financial planner Paul Gordon explains why doing the right thing is costing some doctors thousands

The ‘contingent decision’ regime for NHS pensions has gone a long way to remedy some of the injustices experienced by doctors who changed their pension arrangements as a result of an attempt to shift younger doctors into the 2015 scheme earlier than April 2022. This scheme was later found to be discriminatory under the McCloud judgement and members are being offered the chance to adjust the decisions they made at the time.

But what about those doctors that did nothing? In many cases, they simply went along with the changes, didn’t change their contributions or opt out (you are busy people, after all), but they are now facing significant tax bills as a result of the reversion to the old scheme. We have clients who are facing tax charges of up to £20,000 that they now have to fund from savings or by using the ‘scheme pays’ system.

This seems unfair. The NHSBSA has been willing to accommodate those who made a decision based on the available information at the time. Those who opted out of the scheme temporarily can now buy back additional service for some or all of the seven-year period (1 April 2015 to 31 March 2022). These individuals can look objectively at the calculations: they can judge whether it is worth buying back, say, five years’ worth of contributions, based on the additional pension they will receive and the tax charges they will pay.

Those that did nothing are not afforded this luxury. They are now confronted with high tax charges because the reversion to the old scheme has tipped them over the annual allowance, but they cannot make a different decision.

The level of these tax charges is only just becoming clear as the remediable pension savings statements (RPSS) are sent out. The latest set of statements are those that have been manually calculated, and there are some unpleasant charges. Scheme members can see clearly that as they revert back to their old scheme, for some, the growth is larger and the tax charges are bigger. Yet as things stand, there is no reverse contingent decision.

This appears to discriminate against those who have simply toed the line, carried on paying in, and done everything expected of them. Many doctors do not have access to advice, do not run a side hustle of being an actuary, and do not have plenty of spare time to work out their pension arrangements. Increasingly, our clients are asking why they can’t use contingent decisions to reverse their original decision, opt out for some, or all, of that seven-year period and save a chunk of tax. The answer is, for the time being, they can’t.

Those who opted out have benefited from having the income paid to them, and also from the ability to use hindsight and make decisions on an informed basis. Those who simply paid in, are being denied that option.

We put this to the NHSBSA, asking whether it would be possible for a member of the scheme to amend their contributions to the NHS Pension retrospectively during the seven-year period of the McCloud judgement, pointing out that it seemed unfair for those who simply continued membership and are now facing substantial, and often unexpected, tax charges.

It reiterated that it only considered a ‘contingent decision’ to be where a member opted out of membership during the remedy period due to the discrimination identified in the McCloud judgement. It added that there are currently no provisions for members to opt-out retrospectively – either within ‘contingent decisions’ or under any other circumstance. Its view is that members who didn’t opt-out have a choice of legacy or reformed scheme benefits for the remedy period and should not therefore be disadvantaged by the application of the remedy.   In the meantime, is there anything that these affected members can do?

Sadly, the answer is not in the short-term. We continue to try and persuade NHSBSA that this is an area that needs to be addressed. While we wait for common sense to prevail, we are guiding our clients on the best course of action to meet their tax bills and plan for their future pension provision.

Paul Gordon is a medical specialist financial planner at atomos