Senior clinicians within the NHS Pension Scheme will receive extra assistance to adjust their pension accrual to fit within tax allowances.
The joint approach from the Government Actuary's Department (GAD) and the Department of Health and Social Care (DHSC) comes after months of tax reform concerns culminated in serious NHS staffing problems as the coronavirus pandemic spread to the UK.
Guidance from GAD and the DHSC released yesterday (27 May) involves offering greater pension flexibilities to manage scheme benefits and the tapered annual allowance structure.
The impact of the tapered annual allowance had raised a number of concerns in the last year for many higher-paid NHS workers facing punitive tax charges for breaching the cap, which reduces by £1 for every £2 earned over £150,000.
Following this, 44% of clinical and non-clinical trust executive directors told NHS member organisation, NHS Providers, that they were considering leaving the NHS in the next two years due to pension taxation problems.
The GAD said the new approach comes in response to government concerns that "the taper was driving a behavioural response from NHS clinicians to reduce their work commitments".
The government launched its consultation on amending the contribution rules of the NHS Pension Scheme last July in a bid to mitigate the possibility of members hitting tax allowances, but the issue was then placed on the backburner.
The DHSC has now consulted with GAD on a range of flexibilities, including giving NHS Pension Scheme members the option to accrue at a flexible rate in exchange for paying reduced employee contributions.
The government bodies say this will enable clinicians to continue to work in the NHS and "tailor their pension scheme accrual to the level they wish to achieve", allowing for tax implications.
GAD said: "We supported the DHSC consultation by carrying out detailed analysis. We also provided worked examples to illustrate the consultation approach and the implications on members benefits and taxation."
The DHSC consultation findings fed into a review of the tapered annual allowance led by HM Treasury announced in the March Budget, but a formal response is yet to be published.
Aegon head of pensions Kate Smith said the mobilisation of the government to finally breach the concerns around taxation for NHS staff, and this consequent approach, may not be enough.
"Individuals may not know their earnings until the tax year has ended, which means they still risk receiving a tax bill," she said. "Each individual will have their own unique financial circumstances, so it this new flexibility is offered, it will be imperative for affected NHS staff to get financial advice."
She concluded: "Introducing more flexibility, such as the option to have a flexible accrual rate in return for a reduced employer contribution does appear to be a workable solution. In the current crisis, the NHS needs all the doctors and medical staff it can get."
The Pensions Regulator (TPR) chief executive Charles Counsell has warned scheme trustees could see an increased demand for cash equivalent transfer values (CETVs) from defined benefit (DB) members.
Costly DB scheme regulations can result in abuses of equitable relations among stakeholders, say Iain Clacher and Con Keating.
Almost three-quarters of FTSE 100 defined benefit (DB) pension schemes were in surplus on an accounting basis as the coronavirus crisis hit, according to Lane Clark & Peacock (LCP).
The Local Government Pension Scheme (LGPS) cut its deficit by £31bn over the course of three years, its latest annual report shows.
The easing of the UK’s lockdown could mean a steady rise in defined benefit (DB) transfers, as the ‘lockdown effect’ on the sector weakens, research from Lane Clark & Peacock (LCP) finds.