Senior NHS doctors reveal they’re being forced to retire due to complex rules



A new government report has revealed that complex pension tax taper rules for high earners are forcing huge numbers of senior NHS doctors into retirement.

An influential committee of MPs have branded the pension tax rules which are exacerbating pressures on the NHS a “national scandal”.

A survey conducted by the Royal College of Surgeons of England found over two-thirds (69 per cent) of respondents had reduced working hours as a direct result of pension tax rules.

Meanwhile, a separate survey by the Royal College of Physicians in 2019 found 50 per cent of 2,800 doctors surveyed had retired earlier than planned, with most citing pension concerns as the reason.

Pension tax taper kicks in where someone has “adjusted income” above £240,000 and “threshold income” above £200,000 – but senior doctors working overtime are unlikely to know for certain what their annual hours or earnings will be.

The taper reduces your available annual allowance by £1 for every £2 of adjusted income above £240,000, to a minimum of £4,000 for those with adjusted income above £312,000 Government urged to consider the obvious solution – scrapping the annual allowance taper altogether.

Mr Wayne Jaffe, a consultant plastic and reconstructive surgeon at the University Hospital of North Midlands NHS Trust, told researchers that his retirement happened “almost against his will” in the context of “a cull of senior doctors” faced with “unfair and punitive additional taxes which I have to pay each year because of my seniority.”

He revealed that he was “paying tens of thousands of pounds additional tax each January due to pension growth, which I cannot do anything about”.

Tom Selby, head of retirement policy at AJ Bell, said: “The UK’s pension tax system has become a quagmire of complexity, leaving savers befuddled as to what they can contribute each year and creating hugely damaging unintended consequences for the NHS.

“The select committee has urged the Government to look at solutions that specifically address problems in the NHS pension scheme. However, it would make far more sense to scrap the annual allowance taper altogether.”

In an attempt to help workers navigate pension tax rules, i, with the help of Jenny Holt, the managing director for customer savings and investments at Standard Life, outlines some options around accessing pension savings and the tax tips that can help make the most of them.

More from Pensions and Retirement

Can I take 25 per cent of my pension tax free every year? 

When you access your pension savings, you can normally take a quarter – 25 per cent – of your total pot tax free. You can take it in slices over a number of tax years if the pension plan you have lets you, but you don’t get a new 25 per cent tax-free entitlement each year.

If you have a defined contribution pension, when you take your tax-free entitlement is up to you, provided you are over 55. You can take it all at once, but you don’t have to – and it’s important to remember, once it’s gone, it’s gone.

Ms Holt said: “Just because you can, doesn’t mean you should take all – or any of it. The longer your money stays untouched inside your pension plan, the more potential it has to grow in a tax-efficient way and the higher your tax-free entitlement could be.

“Of course, that’s not guaranteed and because money in your pension plan remains invested, its value can go down as well as up and could be worth less in the future than what’s been paid in.”

How much tax will I pay on my pension money? 

When and how you take your pension can make a big difference to how much tax you pay. Taking money little and often can make all the difference so that you don’t pay more tax than you need to.

Most people will have a personal income tax allowance that means they don’t have to pay tax on the first £12,570 of their income (for the year 2022/23), such as salary or rental income.

Although, if your yearly income is over £100,000, you may not get all this personal allowance, and also your own personal circumstances, including where you live in the UK, will have an impact on the tax you pay and laws and tax rules may change in the future.

When you take money from your pension savings over your tax-free entitlement, it’s taxable just like any other income – as is the state pension, when it kicks in. That means you pay income tax on anything above your tax-free entitlement and any personal allowance you get every year.

How much income tax you pay will depend on which tax band your income falls into. By taking just enough to stay in the lowest tax band possible, you could keep more of your money overall during your retirement.

Do I pay tax on my pension income if I’m still working? 

You’ll still pay income tax on your pension money if you’re working when you access it. However, it’s important to understand how taking your pension money could affect the amount you can pay in.

Once you start flexibly accessing any taxable income from your pension savings, the amount that can be paid into any of your pension plans while still getting tax benefits will be limited to £4,000 per tax year – known as the Money Purchase Annual Allowance.

If an employer contributes to your pension, it’s worth calculating if you’d continue to benefit from their full contribution while also drawing a pension income.

The potential benefit of little and often 

Ms Holt added: “Life after 55 is full of possibilities – whether that’s to continue working, work less, set up your own business or do some travelling. Whatever your plans, taking out just what you need and leaving the rest in your pension plan until you need it could be a sensible move for many people.

“This is because you’re keeping your money invested with the potential for growth. Taking out more than you need and putting it in a current or low-interest savings account, for example, means you lose that potential for growth, and as costs rise with inflation this means you can afford to buy less with your savings.”

Last but not least, passing it on 

Pension plans can be a good way to pass your money on to whoever you want to inherit it. Positively, inheritance tax isn’t normally payable on your pension savings.

However, as wills don’t usually cover pension plans, it’s important to tell your pension provider(s) who you want your money to go to on your death. You can do this by nominating your beneficiaries and keeping these details up to date.

If you haven’t done this, your provider(s) will take your wishes in your will into account but cannot be bound by them. However, before making any decisions it could be a good idea to talk your tax position through with a financial adviser, if that’s possible, to ensure you’re making the right choices for your circumstances.

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