Too little, too late? The NHS action on pension tax impacts

In the latest in a series of articles on the ripe-for-reform NHS pension scheme, Adviser Samantha Kaye looks at the newly announced emergency measure to encourage senior clinicians to take on additional work without being left out of pocket. Is this a promising step forward or no more than a frantic ‘quick fix’ to avoid a winter healthcare crisis? And how will these new rules work in practice for clinicians?

The NHS in crisis

In September I talked in detail about the current NHS pension crisis, and the impact it is having on healthcare. In short, the crisis has arisen due to the so-called ‘tax trap’ whereby senior NHS clinicians are facing higher tax bills for working additional hours, and were therefore beginning to turn down extra work, or were working unpaid. Unsurprisingly this issue has aggravated the healthcare crisis currently engulfing the NHS scheme – a shocking 96% of trusts exceeded the recommended occupancy levels last winter.* Worse still, waiting lists have since risen by 50% in some hospitals because of doctors turning down extra shifts, increasing worries over patient safety.**

At the time of writing in September, a new public consultation had been announced to look into Health and Social Care Secretary Matt Hancock’s recent proposal to change pension rules for top doctors and surgeons, so they could freely take on additional shifts to reduce waiting lists, fill rota gaps or take on further supervisory responsibilities. The proposal received a mixed response, and it has become increasingly clear that immediate action is required to prevent a repeat of what the BMA labelled as ‘the worst winter on record for the NHS’.

A temporary solution?

Last week NHS England Chief Executive Simon Stevens confirmed a temporary “solution” to the pensions tax impact on the health service, in a letter to health leaders on 22nd November.^ He said the government-approved emergency measure would alleviate pressure in the short term by “ensuring that clinicians who exceed their NHS pension annual allowance in this financial year are not left out of pocket”.

This ‘exceptional action’ will mean the following:

  • Clinicians who are members of the NHS Pension Scheme and face a tax charge in respect of work undertaken in this tax year (2019/20) as a result of breaching their pension annual allowance threshold will be able to have this charge paid (by completing and returning a ‘Scheme Pays’ form before 31 July 2021) meaning that they don’t have to worry about paying the charge now out of their own pocket.
  • The NHS employer will make a contractually binding commitment to pay them a corresponding amount on retirement, ensuring that they are fully compensated in retirement for the effect of the 2019/20 Scheme Pays deduction on their income from the NHS Pension Scheme in retirement.^

In short, they will have their pension tax bills covered by the government. Clinicians will be fully compensated at retirement – if this affects you, you will need to know of any annual allowance charges each year and organise payment of the charge by ‘Scheme Pays’. If you are unsure, it is worth taking financial advice.

The problem of the ‘taper tax trap’

A quick fix this might be, but the wider problem of ‘tapered tax allowances’ is still to be addressed – an issue that is not confined to NHS employees. This extra measure was introduced in 2016 to limit the amount of pension tax relief that can be claimed by high earners, but has proven to be an incredibly complex and confusing way to curb pension tax privileges.

Under this scheme, some individuals can see their annual allowance (the total amount that can be paid into your pension each year for tax relief purposes – which today sits at £40,000) reduced to as little as £10,000 a year.

Many experts have therefore criticised the recent NHS move as being too little, too late. Former Pensions Minister Sir Steve Webb gave the best summary of the overall issue:

“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.”^^

Loud and clear?

In his letter, Simon Stevens said that the NHS has “heard loud and clear from NHS staff that pensions tax rules are impacting upon staff who want to do the right thing by patients”. It is clear that, although this solution is a positive step towards alleviating staffing pressures in the short term, it should be viewed as no more than a stopgap to avert a winter healthcare crisis, and long-term steps need to be taken. There’s been time for listening; now it’s time for action.

At Wellesley, we will keep you updated on the effects of these proposed NHS changes, and what they mean for NHS employees. Check back here for updates.

If you’d like to speak to Sam further, please email


* British Medical Association, NHS Pressures – Winter 2018/19: A hidden crisis
^^ FT Adviser, Govt to pay doctors’ tax bills in emergency measure, 19 November 2019

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Author: Samantha Kaye
Author: Samantha KayeAdviser