Hospital Dr News

Pensions change raises threshold at which doctors hit with taxation penalties

The Government has increased the threshold income at which the tapered annual allowance applies to NHS pensions.

Previously, doctors earning over £110,000 were being hit with significant additional tax bills.

Many senior doctors reduced their hours or considered early retirement over the additional pension taxation.

Now the Government has increased the threshold to £200,000 as part of the Budget.

The Chancellor Rishi Sunak said: “To support the delivery of public services, particularly in the NHS, the two tapered annual allowance thresholds will each be raised by £90,000.

“This means that from 2020-2021 the ‘threshold income’ will be £200,000, so individuals with income below this level will not be affected by the tapered annual allowance, and the annual allowance will only begin to taper down for individuals who also have an ‘adjusted income’ above £240,000.”

Responding to the announcement, Danny Mortimer, chief executive of NHS Employers, said: “Employers across the NHS will welcome this significant step in reforming pensions taxation. 

“The overwhelming majority of NHS employees will no longer face the uncertainty and distress of the application of the annual allowance taper based on additional NHS earnings. This importantly provides certainty for them. Employers will also hope that this announcement reassures clinical colleagues so that they can agree to undertake additional work without the perverse consequences that have resulted in recent years.” 

While the BMA welcomed the move, it still criticised the application of the annual allowance to defined benefit schemes such as the NHS.

It said many doctors with incomes far below the new threshold income will face tax bills as a result of exceeding the standard annual allowance, which remains set at £40,000.

This can happen simply following a modest rise in pensionable pay, for example when receiving a pay increment, taking on a leadership role or being recognised for clinical excellence, the BMA’s Dr Vishal Sharma, Chair of the Pensions Committee.

He said that because there has been no change to the level of the lifetime allowance it is essential that the recycling of employers contributions is mandated and is available to all doctors and other NHS staff forced to leave the pension scheme as a result of pension taxation.

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