Most NHS staff to avoid pension tax after Budget

The change – presented in the Budget – was widely welcomed by NHS leaders. They had expressed concern that senior doctors and nurses were refusing to take on extra shifts or leadership roles for fear of being hit with a large tax bill. This affected attempts to reduce waiting times, for example, or destabilised NHS clinical management.

Managers were also being hit with unexpected tax bills. But the government limited temporary measures to clinicians to ensure they did not turn down extra hours this winter.

The HFMA and others had called for a solution that treated all staff equally, pointing out that the tax rules were leading senior managers to reduce hours or seek early retirement. The Budget changes will apply to all staff, as well as high earners in the wider economy.

The pension tax rules affected those with a threshold income above £110,000 a year – this was the most that could be earned before potentially becoming liable for the tax. Those with an adjusted income – which includes threshold income plus their annual growth in pension savings – of more than £150,000 were liable for tax, with the tax-free allowance tapered as adjusted income increased.

But in the March Budget, chancellor Rishi Sunak raised both thresholds by £90,000, increasing the annual income allowance to £200,000 and the taper threshold to £240,000.

‘Based on their vital work for the NHS, that will take around 98% of consultants and 96% of GPs out of the taper altogether,’ the chancellor said.

NHS Employers chief executive Danny Mortimer said the chancellor’s announcement was a significant step in reforming pensions taxation. ‘The overwhelming majority of NHS employees will no longer face the uncertainty and distress of the application of the annual allowance taper based on additional NHS earnings,’ he said. 

‘Employers will hope this announcement reassures clinical colleagues so they can agree to undertake additional work without the perverse consequences that have resulted in recent years. The change in the taper will also benefit a wider range of employees, and this is also welcome.’