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Pensions lifetime and annual allowances: the impact on the NHS

Debbie Patterson

29 May 2019

The tax implications of the lifetime and annual allowance on clinicians who are members of the NHS pension scheme has been in the press recently. Senior clinicians are refusing to take on additional work or are taking early retirement to avoid large tax bills which are at a rate higher than the current tax rates.

This ‘How it works’ briefing sets out the background to the issue and points members at useful guidance. The briefing does not include any advice as the HFMA does not provide financial or pension advice.

Recently there have been a number of articles in the press about the NHS pensions crisis and clinics being cut as a result of doctors leaving the NHS. The British Medical Association (BMA) is lobbying the government for changes to the NHS pension scheme or the current tax rules, arguing that the impact on NHS services is an unintended consequence of the recent changes to the tax legislation.

The Chancellor has recently announced that he is discussing the issue with the Secretary of State for Health and Social Care with a view to providing additional pension flexibility for NHS doctors affected by the annual allowance tax charge.

The issue at the heart of this debate is the limit to the contribution that individuals can make to their pension scheme each year and the size of the pension pot without being subject to tax – the annual allowance and the lifetime allowance. The annual allowance was significantly reduced in 2011, but in 2016 it was subject to a taper which means that more highly paid individuals are being impacted and are having to pay additional tax. The annual allowance and lifetime allowance are applicable to everyone paying tax in the UK – this is not an NHS specific issue or even a public sector specific issue.

Pensions lifetime and annual allowances: the impact on the NHS

May 2019 (PDF 268KB)