Labour’s shadow Health and Social Care secretary, Wes Streeting, has pledged to do away with the cap above which NHS workers incur additional tax burdens, in a bid to dissuade experienced staff from retiring.
The NHS is currently facing a staffing crisis, with retirements hitting record numbers even as waiting lists continue to grow.
Campaigners such as the British Medical Association have long argued that punitive pensions taxation rules are to blame, especially in so far as they incentivise experienced GPs and consultants to retire early rather than incur additional tax penalties.
The BMA has called for the creation of a tax-unregistered pension scheme of the type introduced to tackle staff retention issues in the judiciary — a suggestion the government has rejected — and has been joined by the Policy Exchange think tank in recommending that the relationship between the consumer price index and the annual allowance in public sector schemes to be revised.
The lifetime allowance was frozen at £1mn last year, and the freeze is intended to stay in place until 2026. NHS pensions are also subject to a £40,000 annual allowance cap, with those who exceed the cap subjected to extra tax.
A taper lowers the annual tax-free allowance for pension contributions from £40,000 to as low as £4,000 for those earning an “adjusted” income of more than £240,000 and a “threshold” income of more than £200,000, something the BMA has criticised.
Doctors are not allowed to opt out of making pension contributions without leaving the scheme, prompting many to choose to retire to avoid the additional tax burden where they otherwise might have continued working.
The government has, thus far, pledged to extend the suspension of rules around workers who “retire and return”, meaning the usual requirement for pension abatements and suspensions — which ordinarily kick in when returning workers exceed certain income thresholds — will not be reapplied until March 2023.
It said that this would encourage more staff to return to work after retirement, but the announcement was criticised by the BMA for doing nothing to solve what it considers a much bigger problem for staff retention — pensions taxation.
Both candidates in the Conservative party leadership campaign were asked about this issue. Rishi Sunak’s campaign said the former chancellor would “continue to support” NHS staff should he be elected, while Liz Truss said she would “sort out” the question of pensions tax as it pertains to staff retention. Neither candidate gave specific proposals.
However, Streeting said on September 2 that the party would scrap the cap should it win the next election, calling its imposition “crazy”.
Speaking to the Telegraph, Streeting said: “I’m not pretending that doing away with the cap is a particularly progressive move, but it is one that sees patients seen faster and will inevitably save lives. I’m just being hard-headed and pragmatic about this.”
Benjamin Mercer is senior reporter at Pensions Expert, FTAdviser's sister publication
