(Bloomberg) — UK Chancellor of the Exchequer Jeremy Hunt is planning to reform pension tax rules in his budget next week in a bid to cut the number of doctors quitting the National Health Service.
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Hunt is preparing to alter the design of a system which mean doctors face higher tax bills when their pension pots grow beyond certain limits, two people familiar with the matter said. The chancellor is concerned the rules are fueling drop-outs from the NHS, with senior doctors retiring earlier or reducing their workload to avoid the charges, according to the people, who requested anonymity discussing unpublished plans.
The changes would help the government tackle labor inactivity — one of Hunt’s top priorities in the March 15 set-piece as he seeks ways to boost economic growth. They would also contribute to addressing a chronic staff shortage in the NHS that’s left some hospitals near breaking point after three years of a pandemic and a brutal flu season. In the 12 months through June, more than 40,000 NHS employees in England left the service.
Current pension rules are discouraging some senior doctors from staying in the NHS, because of a £1.07 million ($1.27 million) lifetime tax-free allowance for total pots and a £40,000 annual limit on tax-free pension saving. When these thresholds are exceeded – a common occurrence for senior doctors on the NHS’s defined benefit pension program – tax charges are incurred, which encourages some doctors to either retire or cut the hours they work.
A report by Parliament’s Health and Social Care Committee last year said it’s a “national scandal that senior medical staff are being forced to reduce their working contributions to the NHS or to leave it entirely because of NHS pension arrangements.”
Hunt’s options under consideration include increasing the annual £40,000 limit and abolishing the lifetime allowance, according to the people familiar with the matter. No final decisions have been made and the plans remain under review, they said.
The British Medical Association, the doctors’ trade union, has been lobbying Hunt to take action on the issue, describing it as a “pensions tax trap.” They want Hunt to scrap the annual and lifetime allowances for doctors, among other reforms.
The Treasury did not immediately respond to a request for comment.
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