Scrap the pension annual allowance taper

Recent changes in pension taxation have reduced the annual allowance which can be put into a pension to £40,000 a year. In 2016 “tapering” was introduced which can further reduce the annual allowance to £10,000

The combined effect of the tapered annual allowance and inflexible public sector pension schemes is having a catastrophic effect on retention and productivity in the public sector. In particular in the NHS, where consultants are not able to afford to do extra work for fear of a punitive tax bill well in excess of any income earned.

The Department of Health and Social Care (DHSC) will shortly open a new consultation inviting views on the set of proposals, which includes giving senior clinicians full flexibility over the amount they put into their pension pots. This replaces the 50:50 proposal put forward for consultation in July. DHSC will work to expedite this process and introduce these changes as soon as possible – we expect this to be in time for the next tax year, subject to the consultation responses.

Following consultation and regulation changes, the new rules would allow senior clinicians in England and Wales to set the exact level of pension accrual at the start of each year, potentially choosing a lower accrual rate and paying lower contributions depending on their financial situation. For example, a 30% accrual rate, or any other percentage in 10% increments subject to views in the consultation. This would give them room to take on additional work without breaching their annual allowance and facing tax charges.

The proposals follow the commitment made in the NHS People Plan to deliver a fairer and more flexible approach to the NHS Pension Scheme for senior clinicians. Guidance will also be given to employers setting out how they can provide flexibility at a local level this financial year for clinicians to do extra work without breaching limits for pensions tax relief.

The NHS Pension Scheme is a devolved matter in Scotland and Northern Ireland, so it would be a decision for the Scottish Government or Northern Ireland Administration to propose pension flexibilities for senior clinicians in those nations.

Alongside the proposals for full NHS pension flexibility, HM Treasury will review how the tapered annual allowance operates in order to support the delivery of public services such as the NHS. HM Treasury will continue to engage with the NHS, the British Medical Association (BMA) and other stakeholders as part of this process.

HM Treasury