Pensions - Articles - Government to pay the pension tax bills of doctors

 Under the plans, the tax bills incurred by doctors this year will be covered by the NHS pension scheme under the ‘scheme pays’ process. But whereas this would normally result in a reduced pension at retirement, the Government will make good any reduced pension.

 However, because the NHS pension scheme is unfunded – in other words, there is no money in the scheme – the NHS pension scheme will need to ask the NHS to provide the money to pay the tax bills to the Treasury. What is not yet clear is whether the NHS will get extra money to do this or whether it will have to reduce clinical budgets to find the cash.

 The underlying problem is caused by the ‘tapered annual allowance’ – a complex feature of the pension tax relief system which the Treasury was reviewing when the General Election was called. But the Treasury has so far insisted that the tax relief system did not need to change.

 Commenting, Steve Webb, Director of Policy at Royal London said: “The plan for the NHS to pay the tax bills of doctors amounts to a bizarre money-go-round with one part of the public sector paying money to another in order to resolve a short-term crisis. The fundamental problem here is the complex system of pension tax relief. The failure of the government to address this issue has resulted in emergency measures having to be taken in the middle of an election campaign simply to avoid a Winter crisis in the NHS. The Treasury could have avoided all of these problems if it had simply admitted months ago that the pension tax relief system is too complex and had abolished the tapered annual allowance altogether”.