Some GPs face soaring pension tax bills of up to half their post-tax income because of the way charges are calculated.
The Association of Independent Specialist Medical Accountants (AISMA) wrote to the Treasury in May proposing changes to legislation or to the way tax charges are calculated over time or for a return of the 2019/20 compensation scheme protecting clinicians from pension growth.
But in a reply on 4 July, the Treasury rejected the proposals citing savings and the generosity of the NHS pension scheme.
‘The reforms to the annual allowance and lifetime allowance made since 2010 are expected to save £6bn per year, and are necessary to deliver a fair system, and to protect the public finances,’ it said.
The letter added: ‘The NHS pension scheme is a defined benefit scheme, and is one of the most generous schemes available, whilst these measures only affect the highest-earning savers.’
Dr Tony Goldstone, deputy co-chair of the BMA’s pension committee, called the letter a ‘stock response’ and warned that the unintended consequences of pension tax charges could include GPs retiring early or refusing extra work.
Figures published in April showed that early retirements in the NHS had reached an all-time high.
Dr Goldstone challenged ‘misleading’ and ‘inaccurate’ claims in the Treasury letter. The letter said tax relief on pension contributions was ‘one of the most expensive reliefs offered by government’ – but Dr Goldstone said that for higher earners in the NHS there was a very steep ‘tiered contribution structure’ with a top contribution rate of 14.5% that removed all higher rates of tax relief.
He said: ‘This very steep “tiering” is higher or “steeper” than in any public sector scheme and fully removes all higher rate tax relief, which is one of a number of reasons which makes the annual allowance as a whole unsuited to defined benefit schemes and the comparison to defined contribution (DC) pension savers deeply unfair,’ he said.
He added: ‘Higher earning NHS workers simply do not access that higher rate relief whereas those in DC do.’
The BMA pensions committee deputy co-chair also hit out at an ‘incorrect’ claim in the Treasury letter around the way NHS pensions are revalued in line with inflation.
Dr Goldstone said of the Treasury letter: ‘There is a time and a place for this sort of stock response, this most certainly is not one of them. The risk to the NHS is huge. Ministers need to listen experts like AISMA and the BMA pensions committee and find a solution to this fast.’