Proposed pension tax review a step in the right direction for Wills and Trusts’ clients and wider medical community
The Conservative manifesto for Thursday's general election has pledged to hold an urgent review of the tapered annual allowance that has been a blight on doctors’ pensions.
The Tories say that the review will be held within the first 30 days of re-election, in collaboration with the British Medical Association [BMA] and Academy of Medical Royal Colleges.
The tapered annual allowance, introduced in 2016, gradually reduces the allowance for those on higher incomes, meaning that they are more likely to suffer an annual tax charge on contributions and a lifetime allowance tax charge on their benefits.
It has forced many doctors to cut their hours, leave the NHS pension scheme or retire early to avoid exceeding their allowance and becoming prone to punitive tax bills.
The pledge to review the taper and its impact on doctors in the NHS Pension Scheme has been rebuffed by the British Medical Association, who insist that more significant action is needed.
Addressing the pledge, BMA council chairman Chaand Nagpaul said: “One of the critical problems stopping many doctors from taking on extra work treating patients and resulting in some leaving the health service altogether, is the huge tax charges they are paying on their pension growth.
“These bills can exceed the money they earn, meaning they are losing out by going to work. A commitment to a review is not new and not what is needed. We need action.
“The next chancellor must immediately scrap the damaging annual allowance and tapered annual allowance in defined benefit pension schemes to ensure that no doctor is penalised for going above and beyond for their patients.”
Both government acknowledgement of the taper's shortcomings and the increasingly intense lobbying from the BMA in response is something that is likely to draw the attention of one legal practice and its clients.
Wills and Trusts, a 27-year-old legal practice in Thame, Oxfordshire, specialises in the growth and protection of financial and family assets. Its managing director, David Batchelor, told The Parliamentary Review how the firm had been helping a string of clients stricken by punitive tax measures.
Batchelor began with a rhetorical question: “Did you know that thousands of NHS nurses will be charged a 55 per cent penalty tax when they retire? Did you also know that an NHS consultant, if they have been doing their job diligently for many years, would pay half a million pounds in penalty tax when they retire?”
It is these and other tax rules that Wills & Trusts prides itself on fighting against on behalf of its clients, according to a belief that the existing tax system is not fit for purpose.
Batchelor spoke passionately about one of his clients who had worked in three different NHS roles and went on to fall victim to a penalty tax measure for exceeding his lifetime allowance after the taper came into effect.
He explained: “A client of ours has worked hard in the NHS for years, first as a junior doctor, then a GP and finally as a consultant. He had saved hard for his entire life and saw to it that he wasn’t a burden on the state.
“He gladly paid 40 per cent of what he earned to the tax man, and another 10 per cent or so as national insurance, all in the hope of a good, long retirement: one in which he could, with our help, pass his knowledge, wisdom and wealth down to his children and grandchildren.
"This client, who had paid over £3 million in tax over his lifetime, and hundreds of thousands in national insurance, was punished when the lifetime allowance came into effect."
As Batchelor laid bare the extent of the punitive tax bill, the sense of injustice was clear.
He said: "Since our client was a member of the NHS pension scheme upon retirement, his pension exceeded the lifetime allowance. He will now pay a total of £452,661 in penalty tax – something we believe is monumentally unfair.”
Given this lingering sentiment of injustice within the firm and among its clients concerning such tax policies, the Conservatives’ move toward a review of the issue may appear a welcome step in the right direction, but the healthcare industry’s push for more immediate and tangible action is a telling move and it would be sensible at the least for the party elected in December to bear this in mind.
The Conservative government recently offered a short-term solution to the taper by promising to cover the tax bills of those listed on the NHS Pension Scheme who occupy frontline clinical roles in England, but the offer only extended to clinicians and solely covered the 2019-20 financial year.
For the BMA, however, such temporary fixes will not suffice.
Nagpaul urged the next government to introduce urgent pension tax reform once the general election is done, saying: “A year ago, the government and the NHS buried their heads in the sand over the crisis that was coming, a crisis that’s now here, caused by punitive pension taxation charges.
“The BMA has lobbied tirelessly to bring about reform of pension taxation; we remain strong in our view that the definitive solution is for a new government to scrap the annual allowance in defined benefit pension schemes as soon as possible.
"This temporary one year scheme announced by NHS England and NHS Improvement is a clear and unequivocal sign of the depth of the crisis the NHS faces this winter, and provides further evidence that pension taxation reform is needed as a matter of urgency.”
The impact of the taper problem has now been brought to light and those affected by it and fighting its punitive measures are looking on with eager eyes. Once an end comes to the general election, anticipation of action will only be greater and if the crisis is to be solved, the next government would do well to act sooner rather than later.