The tax rule that tapers the tax-free contribution limit for pensions has been causing more issues than expected - especially when it comes to NHS consultants. Doctors earnings over £110,000 and part of the NHS pension, where 14 percent of pay is paid to the pension pot, were being charged tax on contributions exceeding pension limits. The rule effectively would make overtime and possibly shifts for many consultants uneconomical to work.
Doctors responded by cutting hours of work and avoiding overtime to counteract any pension tax charge. Some were even taking early retirement options or switching to working in private clinics where the NHS pension does not apply.
Hospital consultants are on the top pay tier which starts at £105,000 and so it is easy to see how they would be caught in a pension trap that targets combined (pension + salary) incomes of £150,000.
The NHS felt the results with operations and clinics being cancelled and growing waiting lists. They responded by planning to allow doctors the ability to cut the pension contribution from 14% to 7% for a period of up to ten years. The move called 50:50 plan, mirrors that of local government councils.
Now, Matt Hancock, the Health Secretary, has announced a new public consultation into changing the way NHS pensions are handled in order to allow full flexibility for those currently caught by pension limit rules. This consultation replaces the previous 50:50 plans.
The consultation is for senior clinicians, including top doctors and surgeons and the results of it should allow those currently dropping shifts due to financial implications to continue to work without worrying about tax clawbacks. The consultation results will take effect from April 2020.
The new plans are to allow clinicians to set the amount of pension accrual they want at the start of each tax year. Any 10 percent increment can be set, so 30% contributions for 30% accruals etc. An option to allow unused contributions to be back put into the salary will be allowed.