Senior NHS staff in Wales and England are reportedly turning down extra shifts because the additional time worked would have little impact on their take home pay due to the controversial pension Annual Allowance. Despite the fact that working extra shifts would ultimately help to reduce NHS waiting times, the current pensions arrangements penalise higher earning NHS workers which is causing many to decline overtime.
The government has now announced that it will review the Annual Allowance rules – a move welcomed by those in the pension industry.
Stuart Price, Partner and Actuary at Quantum Advisory in Cardiff, said: “The Annual Allowance was originally introduced by the Treasury so it would receive additional tax from the very wealthy, but is now ensnaring more ordinary individuals such as well qualified long serving NHS professionals. It allows anyone to save tax efficiently up to £40,000 every tax year into their pension. Anyone who saves more than this will receive a significant tax charge on their additional pension savings. To compound this, in 2016 a tapered Annual Allowance was introduced that meant if you had a combined taxable income and pension savings of over £150,000 or taxable income minus your pension savings of over £110,000, you would receive a reduction in the annual allowance of £1 for every £2 that exceeds £150,000. This applies up to £210,000, giving a maximum reduction of £30,000.
As you can see, it’s not the most straight-forward policy and can land senior NHS staff with unexpected big tax bills! This is primarily because many NHS staff do not know exactly what their annual earnings will be. To play it safe, some workers have cut down their hours or declined to work additional shifts, and in an industry that is already severely strained, this is dire.
To ease the issue, it was proposed last month to introduce a 50:50 system, similar to that offered to local government workers, allowing employees to reduce their pensions accrual by 50% and pay 50% lower contributions. Initial reaction was not positive, so this has now been scrapped by current Prime Minister Boris Johnson.
The Annual Allowance is having a damaging effect on the NHS and is affecting patient care. The Department of Health and Social Care is due to publish a consultation with new pension rules in the coming weeks offering NHS workers much more pension flexibility which will hopefully get things back on track and let the medical professionals do what they do best.
Ironically, when the Annual Allowance was first introduced in 2006 it was under the banner of ‘Pension Simplification’. I would suggest we go back to the drawing board to make the UK pension tax regime simple and fair to all.”
Stuart Price, Partner and Actuary