I have all the respect in the world for pensions experts. Having spent weeks getting my head around NHS pensions, I don’t know how anyone can understand their intricacies (while retaining the will to live).
But I am starting to think that this complexity serves a purpose for the Government. The discussion around pensions tax reliefs, tapers, annual and lifetime allowance, and so on, hides a simple truth: the Government cannot afford NHS pensions and is doing all it can to limit the amount it pays out.
As our analysis on page 20 shows, there has been a series of reductions to pensions tax allowance since 2010 that have overwhelmingly affected GPs and consultants on the NHS Pension Scheme.
Ministers have insisted the reason for the reforms is to help raise revenue. However, taxing the highest earners hardly fits the philosophy of the Conservative Party. At the same time as introducing this tax hit on pensions, the Coalition Government reduced the highest rate of income tax from 50% to 45%.
So what is going on? When researching our pensions analysis, I came across a fascinating figure. The Government raised £517m from individuals who exceeded their tax relief allowance in 2016/17, the year the reforms really kicked in, up from £143m in 2015-16.
Yet the Department of Health and Social Care’s consultation states the tax reforms are saving £7bn a year. When I asked about this discrepancy, I was told the £7bn figure factors in ‘behavioural changes’.
Government should come clean and admit it cannot afford NHS pensions
You don’t have to be a tinfoil hat conspiracy theorist to posit that the reason for these reforms is not to raise revenue but to place a de facto limit on NHS pensions liabilities.
And it is working. GPs and consultants are refraining from increasing their pensions because it makes no financial sense. What the Government hadn’t taken into account, however, was the unintended consequences. In their greed, ministers placed such limits that GPs and consultants were being penalised for the very act of working. So they cut shifts and even retired early.
The DHSC’s solution – to allow doctors to increase their pensions at their own rate – is doomed to fail, as tax relief rules remain far too complicated.
But I have a proposal. The Government should come clean and admit it can’t afford NHS pensions.
Instead of imposing a baffling tax relief system that is stopping GPs from working, just cap the pensions themselves. When a doctor reaches £1.055m – the lifetime allowance before a tax charge kicks in – they simply can’t put any more in. The Treasury may miss out on half a billion of revenue but this would pale into insignificance when set against the fall in pensions liabilities.
So what’s in it for GPs? No penalties. Less worry. The option of a private pension. And not really giving up much – after all, the current de facto limit is brutal.
When I put this idea on PulseToday, some made the point that it relies on Capita keeping proper records. But this shouldn’t be a block – Capita should be forced to get its act together regardless.
The situation is untenable. And a bit of honesty from ministers would go a long way to finding a solution. I fear their current proposals will do little to stem the tide of early retirements and GPs cutting their hours.
Jaimie Kaffash is editor of Pulse. Follow him on Twitter @jkaffash or email him at email@example.com