Doctors should have full flexibility about the amount they put into pension pots so they are not penalised for working overtime, the government says.
It will shortly open a consultation with the proposal that would allow high-earning clinicians and doctors to treat more patients without losing financially.
This replaces the 50:50 proposal put forward for consultation just over two weeks ago (22 July) where members could reduce the amount of pension they build up alongside the amount paid.
Starting from next financial year, the new rules would allow senior clinicians to set the exact level of pension accrual at the start of each year.
For example, 30 per cent contributions for a 30 per cent accrual rate, or any other percentage in 10 per cent increments depending on their financial situation.
The government says this would give them room to take on additional work without breaching their annual allowance and facing tax charges.
Employers would then have the option to recycle their unused contribution back into the clinician’s salary.
The new proposal is meant to tackle an acute staffing crisis where senior doctors and clinicians are not doing overtime due to pension tax rules.
The British Medical Association surveyed 6,170 GPs and consultants to find out how their work patterns are changing due to the annual allowance and lifetime allowance.
It found 42 per cent of GPs have already reduced the number of hours spent caring for patients because of actual or potential pension taxation charges.
Alongside the proposals for full flexibility, HM Treasury will review how the tapered annual allowance supports the delivery of public services such as the NHS.
The government says the Treasury will continue to engage with the NHS, the BMA and other stakeholders as part of this process.
Chancellor Sajid Javid says: “This government is committed to ensuring that British people see a real difference in public services, including getting quicker GP appointments and a reduction in waiting times.
“Critical to that is introducing flexibility into the system so that our hospitals have the staff they need to deliver high-quality patient care, which is why we’ve listened to concerns and will be reviewing the operation of the tapered annual allowance. This will help to support the delivery of our vital public services.”
Responding to the announcement AJ Bell senior analyst Tom Selby says the government has got itself into a “real mess” over the pension tax taper.
He adds: “For months the Treasury has insisted the horrendously complicated taper was a central part of the system and here to stay.
“While today’s announcement from recently appointed chancellor Sajid Javid isn’t quite a U-turn, it represents a significant shift in position from his predecessor Philip Hammond.
“High-earning consultants and GPs are refusing extra shifts because of the impact the taper has on the tax they pay, placing significant strain on the UK’s already creaking health system.”
And he notes the taper applies to all savers, not just those in the public sector.
“It acts as a significant disincentive to long-term saving and creates a complex barrier to effective retirement communication. We know this complexity puts people off pension saving and it needs to be tackled head-on.”
AJ Bell suggests the government should “broaden its horizons” to consider the “potentially harmful consequences” of other pension tax measures.