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The tapered Annual Allowance and why reform will help the NHS

View profile for Jonathan Beardmore
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According to the NHS Confederation, the Chancellor Sajid Javid could address the NHS pensions crisis by scrapping the tapered Annual Allowance. 

The Confederation claims that the current crisis is due to the introduction of the tapered Annual Allowance and the further lowering of the standard Annual Allowance to £40,000, which has dissuaded senior medical professionals and other staff from continuing to pay into their pension. 

The Annual Allowance on public sector pensions places a cap on the increase to the value of pension benefits that can build up each year. If an individual exceeds this limit, they will have to pay a tax charge. The tapered Annual Allowance, introduced in 2016, means that for every £2 of adjusted income over £150,000, an individual’s annual allowance is reduced by £1. 

This has resulted in many doctors and other senior clinical NHS staff turning down additional work and reducing their working hours, affecting the quality of patient care. According to a survey conducted by the NHS Confederation, 42% of senior medical professionals (predominantly consultants) have reduced the number of extra shifts they do.

Highly skilled professionals and consultants are being landed with five and even six figure tax bills each year. The only way they can avoid exceeding their allowance is to either reduce their hours or quit the NHS pension scheme. The government is currently consulting to give senior doctors and clinicians flexibility to halve their pension contributions, to help mitigate their risk of tax charges.

The hard truth is that highly experienced specialists who are vital to the public sector need incentive to put in the extra work. Without such incentives, they will no doubt seek work in other places. 

Niall Dickson, NHS Confederation Chief Executive, said: “The current proposals are not enough to tackle the problem – what we need is a more wide-ranging set of reforms which do not seek to penalise hard working professionals, many of whom have devoted their careers to public service in the NHS, providing essential services and care to patients.” 

The allowance debacle spreads even further than the NHS, into the military as well. As the government begins to outline plans to deal with the NHS pensions issues, it raises concerns for other areas of public spending. Police chiefs are also seeking for fixes to stop valuable trained staff from leaving the police service

Hopefully, the government will be able to introduce reforms that ease the pensions crisis in the public sector, however, with Brexit looming, it could be at the bottom of a lengthy list.

Please note that the information and opinions contained in this article are not intended to be comprehensive, nor to provide legal advice. No responsibility for its accuracy or correctness is assumed by Pearson Solicitors and Financial Advisers LLP or any of its members or employees. Professional legal advice should be obtained before taking, or refraining from taking, any action as a result of this article.