Pensions - Articles - Complexity of proposed solutions to NHS pension problems

 “A significant number of highly paid medical professionals are facing major tax bills because extra earnings from taking on additional work can lead to extra NHS pension scheme entitlements which break pension tax limits. While the spotlight has been on NHS employees, there is a wider issue around just how complex the rules are, particularly for those earning above £110,000 a year. They become subject to the ‘tapered annual allowance’ which means the amount they and their employer can pay in each year reduces as earnings increase, falling from the standard £40k to £10k for those earning above £210,000. For medical professionals taking on extra work, their year’s earnings won’t be known in advance making it particularly difficult to make sure pension contributions don’t exceed their personal limit.

 “It’s important to resolve this issue so medical professionals don’t feel constrained from taking on extra work. The Government is consulting on allowing individuals to choose in advance to take only a proportion of their pension entitlement or to wait till the end of the year before deciding how much additional pension to ‘buy’, both designed to avoid suffering a tax penalty.

 “While well intentioned, expecting medical professionals to make informed choices here is layering further complex decisions on top of an already complex set of pensions tax rules. Medical professionals are accustomed to referring complex medical issues to specialists, and here, there is a very strong case for obtaining financial advice from a pensions professional.

 “The current consultation is restricted to the NHS pension scheme. However, there are wider lessons to be learnt and we’d welcome a broader review of pensions tax rules, particularly in areas such as the tapered annual allowance which are hugely complex. The main aim of pensions tax rules should be to incentivise people to save more for their retirement. Unfortunately, for an increasing number of people, they are having the unintended adverse consequence of discouraging them from taking on additional work or pushing them into early retirement.”