NHS staff nearing the end of their careers are reconsidering whether they have to retire early to avoid “punitive” pension taxation rules after the chancellor’s surprise decision in the budget to scrap the £1m cap on tax-free savings.
Jeremy Hunt unveiled the plans on Wednesday in an attempt to stop highly paid older workers, including lots of experienced NHS staff, leaving their jobs early. They will also benefit from the increase in the current £40,000 annual limit for tax-free pension contributions, to £60,000.
Several doctors, dentists and nurses who spoke to the Guardian said they were already reconsidering their retirement plans now that it makes more financial sense to keep working.
Sarah Tennant, pensions lead for the Hospital Consultants and Specialists Association, said that doctors, who have been lobbying for the change for years, should be “cautiously optimistic” but warned that the “pensions tax trap is not entirely fixed”.
She said: “The ultimate test will be whether doctors feel confident that they can navigate the system and be treated fairly to enable them to take on extra NHS work or delay their retirement. The increase in the annual allowance and the changes to pension growth calculations across the NHS schemes provide some breathing space, but senior doctors will still need to do their sums.”
She added that the removal of an annual allowance in defined benefit schemes would have been better than the removal of the lifetime allowance charge, and said the annual allowance taper remaining in place could penalise some senior doctors.
Khalid Khan, an NHS cardiologist consultant from Chester, said: “I’ve been a consultant for 18 years now and, while I still love working in the NHS, I’ve been thinking frequently about leaving for financial and pressure reasons. The abolition of the LTA [lifetime tax allowance] was a good surprise, and will delay my retirement. But it’s not enough to keep me in my role until the usual retirement age.”
He said many doctors were leaving due to work pressures and he thought that pension changes alone would not convince a consultant to remain in post until 67. “It’s really hard to work in the NHS now, a lot less enjoyable.”
Stuart, 61, a dentist from London, said he would now significantly delay his retirement. “I was planning to reduce my hours soon and sell off my dental practice. I had stopped contributing to my pension because I was getting close to the lifetime allowance, but will start again immediately. This is going to prolong my working life. I think I’ll definitely stay until 67 now, maybe going down to part-time after 65. Maybe I’ll stay even longer – it just opens up more possibilities.”
Sarah, 53, is a specialist nurse on the highest pay band for nurses. She had resigned herself to giving up work in 18 months’ time to avoid “crippling tax bills”, even though she wanted to continue working, but will now look at the implications of the rule change to see if she can stay.
“It seems ridiculous – I’m a nurse with lots of specialities, I lead a specialist team, I have years of experience, and I feel I’m being forced out over something I have no choice over,” she said.
A 53-year-old GP from Glasgow said the uncapped allowance would probably not make “any difference” to his retirement age but might make him pay into his pension again, after he opted out when his lifetime limit was reached at the age of 46.
Andy Sant, 51, a GP working in a hospital and in an NHS management role from Cornwall, said the rule changes had come too late and that they were “still not worth my while”.
He has kept his pay below £110,000 for the past three years due to the annual allowance, even though he could make up to £150,000, and doesn’t think upping his hours is worth it. “Until yesterday that extra £40 grand – or sometimes even more because of annual allowance charged – ended up in tax and pension contributions. This new change to the annual allowance means that instead of losing all of that £40k, I’d only lose about £31k. I would gain nine grand a year or so, working an extra day.”
