NHS Pension Scheme: Tapered Annual Allowance

Part of the debate – in Westminster Hall at 11:01 am on 2nd April 2019.

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Photo of Paul Masterton Paul Masterton Conservative, East Renfrewshire 11:01 am, 2nd April 2019

I thank my hon. Friend for his kind comments, which are undeserved. There is a wider issue of the general complexity of the systems of reliefs and allowances in the UK pensions system. I hope not that there will be one single dispensation for one area of the public sector, but that we start to recognise that we need to look at the way the system is operating more generally and to work out whether some of the allowances and reliefs are actually necessary or effective, and whether they should be subject to a broader review.

A recent report showed that over 50% of respondents reported using the NHS “scheme pays” facility to pay off their unexpected tax charges. However, this does not work for all cases, and the amount is effectively treated as a loan that is then paid back from the retirement benefit, with interest charged against the pension at high rates. That means it is usually costlier than paying up front, particularly for younger members. I fear that this issue could see us sleepwalk into a deepening workforce crisis in the NHS and result in consultants leaving the NHS early, even though they still have the skills and experience we need. Those individuals are important not just for patients, but for junior doctors in terms of the training and mentoring they receive on the job.

The British Medical Association firmly believes that long-term changes to the pensions taxation system are required in order to remove the disincentives that exist, and I certainly agree. The Library’s excellent briefing on pensions taxation makes reference to the impact of changes in the annual allowance on the public sector, and notes that the 2017 report of the Doctors and Dentists Review Body requested more evidence about the impact of the annual and lifetime allowance on early departure rates. The Treasury indicated that it would consider revisions to the NHS pension scheme if there was evidence that the number of doctors and dentists taking early retirement as a result of its inflexibility was substantial.

I want to ask the Minister a series of questions, and I appreciate that she might not be able to cover them all today. A number of them fall within the remit of the Treasury, but hopefully she will be able to take those away and arrange for either herself or a Treasury Minister to get back to me. First, what discussions did the Treasury have with the Department of Health and Social Care when the tapered annual allowance was introduced, and was this ever flagged as a potential problem? Secondly, what evidence has the Treasury collected on the numbers of doctors and dentists taking early retirement, following the 2017 report? If the answer is none, why is that the case and when will analysis be carried out of the impact on changes to the lifetime and annual allowances on the NHS? If evidence has been collected, what were the findings of that analysis, and are any changes being considered?

Thirdly, what consideration has the Treasury given to a review of the annual allowance taper more generally, perhaps as part of a wider review into simplifying the incredibly complex system of reliefs and allowances in the UK pensions system? Finally, have the relevant Government Departments had any discussions with the relevant parties on whether permitting more individual flexibility in the NHS pension scheme could be a solution? That is something that NHS Employers is calling for. This issue is not specific to the NHS—I have heard in recent days from armed forces personnel—but it does appear to be an area with a particular problem.

Although I appreciate that many people will not hold great swathes of sympathy for individuals on such high earnings who will still receive high levels of retirement pension that most of our constituents can only dream of, the reality is that if this results in consultants with much-needed expertise turning down work or leaving the NHS altogether, it will have major implications for the provision of services and the quality of care our constituents receive right across the UK, whichever colour of Government is in control of their NHS.

I am sure that the Treasury did not intend these changes to force experienced and committed consultants, surgeons and GPs to do less work for the NHS, but this is the reality being faced in the hospitals that serve my constituents and the Minister’s. It is good that the British Medical Association and NHS Employers recognise that this is a serious concern and met last week to discuss it, but they have not agreed a solution or a joint action plan. In reality, the ball is in the Treasury’s court.

I absolutely respect and agree with the Government’s position that we need to get the balance right between encouraging saving and managing Government finances, but this issue cannot be easily ignored. Legitimate aims to restrict tax perks for the wealthiest in society are exposing ever increasing numbers of long-serving and highly experienced NHS workers to massive tax charges. If we want high quality care in the NHS in Scotland and across the UK, we need senior doctors who have devoted their professional lives to the care and wellbeing of our constituents. It is ludicrous for us to face a situation in which the pensions system is acting as a disincentive and effectively forcing consultants to choose between working for nothing and affecting patient care.

I hope that this debate provides the first opportunity for us to say clearly that, whether the answer lies in adding flexibility to strict NHS pay and pension terms or with the Treasury using this as a reason to take a fresh look at the ridiculously complicated tapered annual allowance, this is an unintended consequence of the UK’s complex pension regime, which we need to sort out quickly to let those consultants get back to work.