The Treasury should abolish the tapered annual allowance as quickly as possible to tackle the NHS pensions crisis, a former pensions minister says.
Steve Webb, who is currently director of policy at mutual Royal London, argues it is “utterly absurd” doctors might not work extra shifts due to pension tax concerns.
A paper published today by Royal London looks at the intricacies of the NHS scheme and what can be done to mitigate the problems it causes higher paid staff.
A recent Freedom of Information Request by wealth manager Quilter showed fewer than one in 10 NHS staff settle their annual allowance breaches through the scheme pays option where the employer meets the cost.
There has been growing political pressure for the government to take action to change NHS Pension Scheme rules to simplify the tax complications for senior NHS staff.
In April the British Medical Association wrote to chancellor Philip Hammond saying doctors will start to reduce their working hours unless reforms are made to the NHS pension scheme.
The paper points out that making changes within the NHS Pension Scheme and/or NHS pay arrangements would largely be “sticking plaster” solutions.
In his recent evidence to the Treasury select committee Hammond suggested a solution along these lines.
The paper goes on to propose a more radical solution and suggests the tapered annual allowance should be scrapped.
It notes that in 2019/20, the tapered annual allowance will start to bite much harder as those who have been consistently high earners will no longer be able to carry forward significant amounts of unused allowance from earlier years before the taper was introduced.
Webb says: “It is utterly absurd that doctors are having to consider their pension tax position before deciding whether or not to take on an additional shift or cover for an absent colleague.
“The NHS is structured around senior clinicians taking on additional roles and responsibilities and this whole culture is being undermined by a bewildering system of pension tax relief.
“Rather than tinkering with the NHS pension scheme, the Treasury should abolish the ludicrous and capricious system of tapering annual allowances for tax relief. Patient care must not continue to suffer on the altar of Treasury intransigence.”