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Case Studies

Proposals to pay doctors’ pension tax bills: update

Newsletter issue - December 2019.

In an attempt to encourage working overtime shifts, doctors have been promised that their tax bills for higher rate pension relief will be covered by the NHS. This development follows the refusal by doctors to work overtime because of tax penalties received on their pensions due to the £40,000 annual allowance limits.

The amount people can put into pensions tax free was reduced for all pension savers in 2010, when the £255,000 allowance was cut to £40,000 a year. This problem originally arose in 2016 when a tapered annual allowance for pension contributions was introduced. Broadly, the changes mean that the £40,000 annual allowance is steadily reduced down to a base level of £10,000. This will generally affect those earning more than £110,000, around a third of senior doctors and GPs.

The latest proposal for the NHS to pay doctors' pension tax relief, would allow doctors to withdraw money from their pensions to pay their tax bills for next year. Then, before the doctor retires, the NHS will top up their pension, meaning the cost of the measure to the health service will be spread out over time while doctors will not be out of pocket.

It is currently proposed that this measure will only apply to the 2019-20 tax year.

From 1 December 2019, an interim policy gives eligible NHS staff in Scotland the option to get their employer pension contributions paid to them as part of their basic pay (see Changes to protect NHS staff for further details). The measure has not yet been confirmed for the rest of the UK.