What are the pension rules driving senior doctors to turn down extra shifts?

High earners could end up being given pension tax breaks as part of efforts to get doctors to take on more shifts, The Times has reported.

The Treasury has refused to comment on whether it is preparing to give tax relief worth hundreds of millions of pounds to people earning more than £110,000 a year in a move designed to tackle the issue of doctors turning down additional shifts because taking on extra hours can see them hit with an increased tax bill on their pension contributions.

But what are these pension rules and why are they leading to doctors turning down shifts?

– What is the tapered pension allowance?

George Osborne
George Osborne introduced the changes (Jonathan Brady/PA)

Rule changes introduced by former chancellor George Osborne, which came into effect in 2016, mean that people who earn more than £110,000 face higher taxes on pension contributions.

The tapered annual allowance is a taxation threshold which restricts the amount of pension growth individuals are allowed each year before tax charges apply.

It gradually reduces the allowance for those on high incomes, meaning they are more likely to suffer an annual tax charge on contributions and a lifetime allowance tax charge on their benefits.

The tapered annual allowance means that for every £2 of income above £150,000 a year, £1 of £40,000 annual allowance is lost.

The minimum reduced annual allowance someone can have is £10,000.

– Why is it affecting doctors?

NHS leaders have said the new pension rules mean senior doctors are effectively “incentivised to cut their hours or quit their jobs”.

The rules mean doctors have been turning down additional shifts because taking on extra hours can see them hit with an increased tax bill of tens of thousands of pounds.

A poll for the British Medical Association (BMA) last year found that six out of 10 of the 4,000 consultants in England responding to the survey revealed early retirement plans, with many blaming the penalties caused by pensions arrangements.

A further poll of GPs, also by the BMA, found that some 42% of GPs had reduced the number of hours spent caring for patients because of actual or potential pension taxation charges, and a further third (34%) were planning to.

Similar numbers of hospital consultants (70%) said they had or would do so in the next 12 months.

– How is this affecting patients?

NHS Providers, the membership organisation for NHS trusts, said last year that NHS waiting lists were soaring because senior doctors were refusing to take on extra work in order to protect their pensions.

The Department of Health and Social Care (DHSC) estimates that one third of consultants and GPs may be reluctant to take on extra shifts on top of their contracted hours because they risk breaching limits on tax relief.

A YouGov survey commissioned by the Royal College of Surgeons (RCS) and published last year found that 68% of consultant surgeons in England were considering early retirement because of the pensions tax situation.

Some 64% had been advised to work fewer hours in the NHS to avoid crippling tax bills, while 69% have reduced the amount of time they have spent working in the NHS as a direct result of pension rules.

The poll of 1,890 consultant surgeons found 61% have been advised to refrain from taking part in measures to cut waiting lists, while 31% have been advised to retire early.

– What is the Government doing about it?

The DHSC launched a consultation in September on proposals that will allow senior clinicians to maximise the amount they can put towards their pension without becoming liable for large additional tax payments.

Among the proposals was that senior doctors be allowed to choose a personalised pension growth level at the start of each tax year and pay correspondingly lower contributions.

A further option to fine-tune their pension growth towards the end of the tax year, when they are clearer on total earnings, would allow them to “top up” their pension pot to the maximum amount without hitting their tapered annual allowance limit, the department said.

The department said it wanted to introduce the proposals in time for the start of the new tax year, with the consultation closing in November.

However, NHS chief executive Simon Stevens wrote to doctors’ leaders last year spelling out how clinicians can opt to pay any tax bill caused by the pensions cap from their pension pot without having to find the funds upfront.

The NHS is then committed to making up the difference in annual payments when they retire.

The Times reported on Thursday that the proposed Treasury plan would involve raising the threshold from £110,000 to £150,000, which could reportedly free up 90% of consultants to take on extra shifts and help cut NHS waiting lists.

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