Pension changes hitting patient care and finances

Changes to complex pension tax changes are having a real impact on patients and NHS finances and solutions must also address the problem outside the clinical community, according to NHS finance managers.

The concerns centre on the introduction of a tapered annual allowance that reduces the amount high earners can save into their pensions tax-free. The way the allowance works with the NHS defined benefit scheme has led to senior doctors, clinicians and managers facing major tax bills. And there have been reports that doctors are choosing not to take-on additional shifts or are even considering early retirement to avoid the charges.

Earlier this year, the HFMA published a briefing – Pensions lifetime and annual allowances: the impact on the NHS – highlighting the issue and how the problem arises. It has now followed this up with a survey of senior finance managers to explore the real repercussions of the pension rules.

More than half the sample of 74 managers said that staff were refusing to work additional hours or take on new responsibilities, with impacts on patients, finances or both. Similar numbers reported staff reducing hours and more than four in 10 said the pension changes were leading to early retirement, again with an impact on patients, finances or both.

Further bodies said they had seen early retirements and hour reductions that hadn’t yet impacted on patients or costs.

Finance managers gave specific examples of the consequences of the pension changes, including consultants unwilling to undertake waiting list initiatives or take on additional programmed activities. Consultant radiologists in one trust had withdrawn from undertaking additional reporting, leading to more expensive outsourcing and reporting delays on diagnostic tests. Another trust reported that two clinical leaders had noted they were receiving no net pay for their additional roles, although they had continued in post.

There were also concerns that the increase in employer contribution from April would mean that more staff will reach the annual and lifetime allowances sooner.

One trust said it had adopted an approach of offering a separate cash payment as an alternative to a pension contribution, although a further 23 (31%) were actively considering it. Many trusts said they were waiting for guidance or highlighted the importance of an NHS-wide solution.

Others pointed out that it would discriminate against low-paid members of staff. Low paid staff opting out of the scheme on the grounds of affordability would not be entitled to a cash payment in lieu of the employer pension contribution, but a senior member of staff would.

The Department of Health and Social Care is currently consulting on a 50:50 option, enabling clinicians to halve their pension contributions in exchange for halving the rate of pension growth. There were mixed views about this proposal. One manager said ‘it could work, but clinicians are adamant it is a pay cut’. Others dismissed the idea as unworkable or unfair – effectively reducing the benefits in return for paying less tax.

A number of managers said the real solution required a review of the annual and lifetime allowances.

There was also agreement that any solution should not be restricted to medical staff – but needed to apply to all clinical and non-clinical staff.

‘The changes around the annual allowance and the tapering process were intended to control the cost of pensions tax relief and ensure the system is fair,’ said Emma Knowles, HFMA director of policy and research. ‘But we are seeing significant unintended consequences. There are already major staff shortages across the NHS and the service currently relies on its hardworking people to work extra hours and take on additional duties to meet rising demand and challenging access targets. Expecting them to continue to take on these additional responsibilities with little or no reward – or even face financial penalties for doing so – is not realistic or fair.

‘The HFMA survey shows that there is growing concern about this issue and there needs to be a rapid solution that does not exacerbate the workforce challenge. This solution also needs to be equitable in treating all staff fairly, rather than providing a short-term fix for one staff grouping.’