The NHS Pension Scheme is a generous and valuable part of the package of pay, terms and conditions for NHS staff, which continues to compare favourably with schemes in other sectors. However, the interaction between the NHS pension scheme and the tapered annual allowance means some clinicians are facing unintended consequences. The tapered allowance rightly aims to see more higher earners contributing towards the public purse by reducing the amount they can save into their pensions tax-free.
The Government has been listening to concerns about the impact on patient care as clinicians decline to take on additional work or seek early retirement in response to the prospect of incurring pension tax charges, and evidence that some NHS clinicians are changing their working patterns due to this issue. The Government is determined to find a solution that provides the right balance of incentives for clinicians to provide the services that patients need. Retaining and maximising the contribution of our highly-skilled clinical workforce is crucial to delivery of the ambitions for patient care set out in the Long-Term Plan for the NHS.
The Government has therefore launched a full public consultation setting out proposals to make the NHS Pension Scheme more flexible for clinicians, to give them more control over their pension growth and tax liabilities. Greater pension flexibility will help clinicians avoid cutting their hours, allow them to undertake additional shifts to reduce waiting lists, or take on further supervisory responsibilities.
The consultation proposes a 50:50 flexibility, which lets clinicians halve their pension contributions in exchange for halving the rate of pension growth, balancing simplicity with the need to offer flexibility. Following discussions with clinicians and employers, the consultation goes further and invites views on other measures that Government should consider.
For NHS Pension Scheme members who do incur annual allowance tax charges, the Scheme Pays facility offers an alternative to finding funds up front to meet any tax charges for saving into their pension whilst they work. Instead they can choose for the pension scheme to pay the tax charge. The pension scheme will then recoup the tax paid plus interest by deducting it from the value of their pension at retirement. The consultation proposes a potential improvement to the calculation of Scheme Pays deductions so that it is more transparent and staff can better assess the effect on their pension.
The consultation will listen to feedback on all potential ideas on pension flexibility before making changes in time for the new tax year.