A perfect Pension Storm

Featuring Scott Campbell | 25th April, 2019

The news from the BMA that their calls for the Treasury to review the pension tax rules, in response to the significant impact it is having on their members, is falling on deaf ears and will be of concern to both consultants and the NHS trusts that employ them. Many are only just waking up to the fact that with their typically high salaries and the defined benefit NHS pension scheme, the pension annual allowance tapering is taking effect. The impact for consultants will be very heavy tax bills (in some instances this could result in marginal rates in excess of 100%), which without action, is leading to the BMA to warn that significant numbers of consultants are now reducing hours and causing a severe (further) shortage in under-resourced departments within the NHS.

The following highlighted extracts from the government’s Review of Senior Salaries 2018 explain the problem:

Figure 3.16 shows the take home pay of senior civil servants [including NHS consultants], as represented by the light blue area. For gross salaries between £118,000 and £170,000, take home pay increases by less than £3,000. Marginal tax rates above 100 per cent are experienced between £118,800 and £122,600, although this calculation does not factor in increases to the value of the pension.

“Such high marginal tax rates mean it could be rational for an individual to seek to work part-time rather than work full-time. This may result in a need to recruit more post-holders or to deny requests to work reduced hours, impacting negatively on motivation. We have not seen evidence that any plan is in place to manage this workforce risk”.

Source: OME analysis.

It is also worth noting that the OME analysis excludes any additional tax implication of the accumulated fund exceeding the Lifetime Allowance, which will not be uncommon among many consultants.

In light of the above, our recommendation to consultants is to seek advice now to consider your options. This may involve looking at opportunities to structure other earnings in a manner that avoids the income contributing to Threshold/Adjusted Income.

Our recommendation to NHS trusts is to seek advice on the working arrangements they have in place with the consultants, to understand if there are opportunities to work differently that will still allow the trust to maintain the same level of service.

One final word of caution for the consultants would be to not assume they are not impacted by these changes. Some consultants have not yet been sent 2017/18 Annual Allowance Statements, despite having requested them some 2-3 months ago, perhaps because of the increased volumes.  As a result, some consultants do not realise that they may have been in the NHS 1995 (or maybe 2008) and 2015 schemes, and may forward only one statement to the advisors to consider the implications – which doesn’t show the full picture and impact on the consultant. Failing to address this issue, could lead to underpayments of tax, as well as interest and penalties, when the ‘full’ picture is known and the consultant has in fact breached their annual allowance.

If you are affected by any of these issues and would like to discuss things further, please do not hesitate to get in touch scott.campbell@pkf-francisclark.co.uk

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