Lords to debate pension tax harming manpower

By Edie Bourne

Doctors facing harsh tax penalties on their pensions will now see the issue debated in the House of Lords this month. 

The news comes as more politicians are urging the Government to fix the healthcare workforce crisis, which has seen many senior doctors forced to reduce hours or retire early to minimise substantial tax charges. 

It is expected that the debate will focus on the impact of the annual allowance and the link between the NHS pension and the Consumer Price Index (CPI) rate of inflation. 

Every year, a doctor’s pension is uplifted by the September rate of the CPI plus 1.5 %. A higher CPI therefore results in a larger potential pension – but the increased growth can trigger a tax charge for breaching the annual allowance. 

The annual allowance limits the growth of the yearly pension to as little as £4,000 for the highest earners. This means that once the growth goes beyond the figure applicable to the member, tax at the doctor’s marginal rate of income is applied. 

The CPI in September last year was 3.1%, up from 0.5% 12 months previously. By July 2022, the official rate was 10.1% already, with predictions from the Bank of England suggesting it might be as high as 13% in a few months’ time. 

Patrick Convey, technical director at specialist financial planners Cavendish Medical, warned there was mounting concern among senior doctors that the soaring rates of inflation were going to severely impact their pension tax. 

The crucial September rate is not normally published until October, but many doctors had started to do the calculations and could see where their pension growth might be heading, he said. 

With the annual total reward statements expected to now be ready for every NHS member, Mr Convey urged ‘everyone’ to download their document to check that the vital information was correct. 

He urged doctors to remember to store this file for future use because they could not download previous years retrospectively. 

Mr Convey told Independent Practitioner Today: ‘We were surprised to see that this year’s statements do not contain any mention of the McCloud remedy, which will update figures for everyone, potentially for the last seven years. 

‘The member’s actual position may now be completely different to the facts presented in the statement. This makes planning the best course of action to take based on your current outlook particularly challenging. 

‘The statement does not contain any information about the annual allowance which is presented in a separate document and is only sent by default if the member’s total input exceeds £40,000. 

‘The result is that many high earners caught by the much-lower tapered annual allowance may not be informed despite there being a potential tax charge.

‘As always, we would suggest you seek expert help from an adviser well versed in checking the nuances of your pay and pension.’