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Senior hospital doctors face crippling tax bills as changes in pension regulations bite

Senior NHS consultants are facing excessive rates of taxation due to changes to rules on pension allowance.

Introduced in 2016, the rule changes mean many consultants are receiving large unexpected tax bills – with many topping £30,000.

The BMA is warning that it is threatening consultant retention in the NHS, with many doctors saying they will retire early.

The BMA’s Consultants Conference recently passed a motion calling on the union to lobby HMRC, the DoH and the Treasury “to alter the annual allowance calculation so that high earning public sector workers are not subjected to excessive rates of taxation”.

Doctors are now paying tax on any growth of the deemed value of their pension over the tax-free annual allowance of £40,000.

Many senior doctors are no longer taking on additional work – such as Waiting List Initiatives or management roles – because they are effectively being taxed at 100% for it.

As well as encouraging doctors to reduce their hours and retire early, the continuing uncertainty over the pension changes has encouraged others to consider opting out of the NHS pension scheme.

IFAs however are warning doctors against leaving the NHS pension scheme without a thorough understanding of what they will gain and lose.

John Ralfe, an independent pensions expert, wrote in the Sunday Times recently that despite the extra taxation doctors will still receive a generous defined-benefit pension – which is guaranteed for life.

Dr Gary Wannan, BMA consultants committee acting chair, responded: “What Mr Ralfe fails to address are the anomalies in the calculation of the pension growth in the NHS Pension Scheme and the difference between doctors’ actual earnings and their ‘adjusted earnings’; the latter of which is used to determine the available annual allowance. For the NHS Pension Scheme, the difference in pension value between the beginning and end of the year is multiplied by a factor of up to 19 times. This means that even very small increases in pay can result in a very large ‘calculated’ pension growth. This calculated growth is then added to the consultants’ actual income to derive their ‘adjusted income’.

“This means that many consultants are subject to tapering (ie a reduction of their annual allowance), even when the actual pay of the vast majority of consultants is significantly below the £150,000 limit. To compound matters, due to the introduction of a new pension scheme in 2015, most consultants are being taxed on a theoretical pension that is much higher than they will ever receive.

“As many will be able to see, this is an incredibly complex area, meaning many doctors inadvertently facing sky-high tax bills that can have serious consequences for themselves and their families.

“Only by removing – or seriously overhauling – the annual and lifetime allowance cap for all public sector workers, will the Government ensure that we retain our highly-skilled doctors to treat our sickest patients, provide high-quality training to the next generation of medics and ensure the safety and sustainability of our NHS.

A survey of doctors earlier this year suggested that six in 10 NHS consultants intend to retire before or at age 60.

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