Pension fix for doctors to stave off winter crisis: NHS to foot their tax bills in pre-election deal - what's going on and is it 'special treatment'?
- Temporary deal to stop doctors refusing shifts to avoid shock tax bills
- Doctors will initially pay bills out of their own pensions
- They will receive top-ups from the NHS at retirement
- Critics say punitive tax rules are causing staff crisis that threatens patient care
- Financial experts say government should simply scrap 'the taper' - the complex rule at heart of the dispute
The NHS is to foot pension tax bills run up by doctors in order to solve a staffing shortage, which it is feared could spark a winter crisis in the health service.
The temporary fix is intended to stop doctors refusing shifts to avoid shock tax penalties, a situation critics claim is threatening patient care by causing longer waiting lists and delays to operations.
The one-year pre-election deal will see doctors pay tax bills out of their pensions initially, in exchange for NHS-funded top-ups at retirement.
But it has provoked outrage among financial experts, who are calling on the Government to reform the system for all higher earners rather than give doctors special treatment.
One-year deal: NHS is to foot pension tax bills run up by doctors in order to solve a staffing shortage
Pension experts brand pension tax fix 'a shambles'
Former Pensions Minister Steve Webb tweeted: 'This is absolutely bizarre! Treasury spends months saying there's no problem and then one bit of the Government ends up spending millions to pay another bit of the Government so that doctors can afford to go work. What a shambles...'
According to Steven Cameron of Aegon, the proposal is 'rearranging the deckchairs', and a 'particularly convoluted' way of stopping obscure pensions rules getting in the way of people receiving urgently needed NHS treatment.
Tom Selby of AJ Bell said that although the political focus was understandably on averting a winter NHS crisis, the fix was 'a bit of a mess'.
'This proposal effectively means handing one particular group of workers more generous pension tax terms than everyone else,' he said.
Why is NHS paying doctor's tax bills?
Complicated pension rules have forced doctors to slash their hours, causing damaging unintended consequences for the NHS and everyone relying on it.
A previous fix floated by the Treasury and Department of Health was decried by the medical profession for not tackling the core problem.
Higher earners, such as headteachers and judges in the public sector, but also well-paid workers in the private sector, are affected by a pension tax rule generally known as 'the taper' - see the box below.
This has caused problems for doctors in particular due to working practices in the health service, with senior staff routinely expected to take overtime shifts, which now lay them open to massive tax bills.
The new plan, which is expected to be formally announced by NHS England later today, will effectively see these bills met by the taxpayer when doctors reach retirement age.
But the deal for doctors will only be in place for the 2019-2020 tax year, leaving the next Government to come up with a more fundamental solution following the election on December 12.
What do doctors say?
Dr Chaand Nagpaul, council chair of the British Medical Association, said the proposals could enable significant numbers of doctors to increase work and give vital patient care at a time of unprecedented demand, if they were properly implemented.
But he added: 'We don't yet have important details about how the such a scheme will work; details that are crucial to the BMA and to the tens of thousands of doctors that we represent in order to provide the necessary reassurance that doctors can take on additional work without this resulting in any financial penalty.'
Government is 'kicking the can down the road'
Doctors will temporarily have their pensions tax bills paid by the NHS in order to avoid understaffing during the notoriously busy winter period, says Gary Smith, chartered financial planner at Tilney.
'Under the proposal, tax bills caused by overtime can be paid out of staff pensions with the NHS committing to top up their pots at a later date.
'This is a very welcome development, which provides a temporary solution to what is rapidly becoming a national crisis.
'Unfortunately, it is not providing a long term solution and this measure is simply kicking the can down the road to next year. There is also the danger that this will lead to calls for similar treatment from other senior public sector workers.
'Whichever government we get next month needs to address the issue of NHS pensions as a matter of urgency.
'Unless the tapering of the annual allowance is scrapped, and the final salary link on previous versions of the scheme are removed, I don't see this issue being solved. I would therefore call on all political parties to make their position on the tapered allowance and how they intend to address this very clear in their upcoming manifestos.'
Fix offers NHS staff 'special treatment'
Jon Greer, head of retirement policy at Quilter, said: 'It would be a radical move by the Government to pay the pension tax bills of NHS workers.
'It is an effective admission that the pension annual allowance taper is a broken policy that is too unpredictable and punitive, however it has taken the country to be on the cusp of a winter crisis in the NHS during an election for the Government to address it.
'This would be a controversial policy given it offers NHS staff special treatment and ignores large swathes of high earning public sector workers who provide critical services everyday such as judges, teachers and transport workers.
'This quick fix to avert a crisis is the only option open to the Government right now.
'Over the longer term the Government should go much further – the noble thing to do would be to accept the taper is not fit for purpose and reverse it.'
Steven Cameron, pensions director at Aegon, said: 'No-one would dispute that we need an urgent solution to the situation where obscure pensions rules are getting in the way of people receiving NHS treatment they urgently need.
'This solution will avoid medical professionals shouldering punitive tax bills but it is particularly convoluted. Effectively, tax bills as a result of they and their employer paying in above the tapered annual allowance will be paid out of doctors' pension pots.
'Then later the NHS will top up those pensions to compensate. Ironically, this could trigger another tax charge if the total paid into the pension in a future year exceeds the allowance then.
'Rather than rearranging the deckchairs, what we need is a fundamental review of how pension allowances work, not just for the NHS, so they reward good savings behaviour and never penalise taking on extra work.'
Government wants to avert a winter crisis and negative headlines in an election
Tom Selby adds: 'The dog's breakfast that is the annual allowance tax taper is getting more and more ridiculous by the day.
'It is ludicrous that the UK's mind-bogglingly complex pension tax system is now causing significant capacity issues for the NHS – effectively putting people's lives at risk as senior consultants refuse shifts to avoid huge tax bills.
'In keeping with the Treasury's overall approach to pension tax relief policy, this latest fix is a bit of a mess as well.
'While political focus is understandably on averting a winter NHS crisis – and the negative headlines that would accompany this as a general election draws near – this proposal effectively means handing one particular group of workers more generous pension tax terms than everyone else.
'Those in other sectors who are also affected by the taper but aren't being offered similar levels of compensation will understandably feel aggrieved.
'Rather than chasing sticking plaster solutions, the Government should accept the taper – however well intentioned – is a bad policy and scrap it altogether. This would cost around £1billion a year, which in the grand scheme of state spending isn't a huge price to pay.
'This should be a precursor to a more radical review of pension tax relief in the UK, with the aim of building on the early success of auto-enrolment by creating a simpler set of savings incentives that people can understand.'
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