Changes to pension tax rules in recent years have meant some consultants and other senior NHS staff have been hit with large unexpected tax bills, which has discouraged some from taking on extra shifts, or prompted people to retire earlier than planned.
NHS England’s chief executive Amanda Pritchard recently suggested this was a significant problem for hospitals as they seek to increase elective activity.
To mitigate the impact, some trusts have implemented a nationally endorsed workaround scheme known as pension recycling, whereby consultants are offered additional salary in place of employer pension contributions.
HSJ asked the 20 trusts with the longest elective waiting lists whether they offered pension recycling to their consultants. Ten said they do, and 10 said they do not. (See table below).
There was a clear regional split in those who have decided whether to adopt the policy. Of the four trusts in the Midlands region included in HSJ’s survey, all were offering pension recycling. The same was true of the four trusts operating in the East of England region.
In contrast, none of the three North West trusts had adopted pension recycling. Only one of the five London trusts – Imperial – was doing so, and only one of three trusts belonging to the North East and Yorkshire region. The sole South East trust did not offer pension recycling.
A senior source at a trust not offering the scheme said it would be “totally unfair” to offer it to senior doctors, when the same opportunity could not be offered to more junior staff. They said consultants who are adversely affected should simply exit the pension scheme. Another trust executive said: “We aren’t doing it on a principle of it just being wrong.”
The key changes to the tax rules, which have been implemented in stages since 2016, have been a reduction in the annual tax free allowance for those earning more than £110,000 (known as the taper), and additional tax charges for those whose total lifetime pension pots exceed £1m.
The thresholds were raised in 2020, with the British Medical Association saying at the time this meant the “vast majority of doctors are now removed from the effect of the taper”.
But Vishal Sharma, the BMA pensions committee chair, who works as a consultant in Liverpool, said: “Whilst the increase in thresholds have mitigated the impact of the tapered annual allowance for the majority of doctors, the problems with both the standard annual and lifetime allowance remain and the problems with pension taxation are very much not fixed….
“To suggest that higher earners impacted by these absurd rules should forgo the value of these employers’ pension contributions if they opt out of the scheme is extremely unfair.
“And those trusts suggesting that offering recycling is unfair on lower earners clearly don’t understand that recycling is not about paying higher earners more. Rather it is simply about reallocating the total reward package so that they are able to maintain its financial value.”
He said pension recycling is commonplace in the private sector and should be “mandated” across all trusts, while also warning that BMA modelling suggests record numbers will retire over the next year, as a result of the issue.
Last month, HSJ revealed BMA representatives at Liverpool University Hospitals had warned of a “significant flurry” of retirements due to its refusal to implement pension recycling.
Paul Wallace, director of employment relations and reward at NHS Employers, which lists pension recycling on its website as a legitimate option for trusts to consider, said: “Any local agreements should be reviewed regularly to ensure that they remain relevant and in the best interests of both employers and employees.” The organisation had previously promoted the approach as a good idea, but has adopted a more neutral approach since the taper changes.
The Department of Health and Social Care said decisions about whether to offer pension contribution recycling are a matter for individual employers.
BMA pensions expert Dr Tony Goldstone told HSJ: ”The reality is that the NHS pension scheme remains phenomenally good value for lower earners not impacted by pension tax. It would be both illegal and immoral to incentivise lower paid members out of the scheme.
“If affordability of the scheme is an issue, then there are other ways to address affordability ensuring healthcare workers receive appropriate pay awards to ensure their pay is uplifted with inflation. With high earners (both consultants and senior managers) being bullied out of the scheme by pensions tax, and the NHS on its knees - its seems an entirely appropriate (and cost neutral to the taxpayer) solution to offer pensions recycling.
“It is frankly insulting to suggest that senior staff “simply exit the pension scheme” and give up a crucial part of their reward package. What is urgently needed is for government to mandate this and end this postcode lottery.”