In relation to proposals from NHS England and Improvement (NHSEI) to provide emergency mitigation for clinicians that incur annual allowance tax charges in 2019/20 the proposal from NHSEI is that if you receive an annual allowance tax bill on the 2019/20 tax year, you should elect to pay this via Scheme Pays. This means that you do not have to pay the tax charge yourself from post taxed income. Normally when using scheme pays, this in effect generates a loan against your final pension. This is deducted from your pension pot and leads to a reduction in your pension (and tax-free lump sum in the 1995 scheme). Under this proposal, NHSEI will pay an additional payment equal to the amount of pension (and lump sum reduction) to you. For employed doctors, this will be via an NHS employer. For those in primary care, the exact mechanism is to be confirmed but is likely to be managed directly by NHS England. The key concerns from the BMA have been to ensure these payments are guaranteed many years into the future and that there were no unintended tax consequences. Following extensive legal discussions, we are now confident that these payments are guaranteed and there is no additional tax liability.
However, this proposal is clearly a short term measure only and we will urgently lobby for pension tax reform as soon as the next government takes office.
The BMA has now had the opportunity to fully consider proposals from NHS England and Improvement (NHSEI) to provide emergency mitigation for clinicians that incur annual allowance tax charges in 2019/20.
Whilst both BMA and NHSEI are clear that a long-term solution to the pension taxation crisis is desperately needed once the next government comes into power, these proposals offer short-term recompense to dedicated clinicians working over the busy winter period so that they are not financially penalised if they receive an annual allowance charge this tax year.
Due to the structure of this scheme, our members understandably need certainty that these payments will be honoured and made no matter what the healthcare landscape looks like in several decades time.
The BMA has been working extensively with NHS England to ensure that these assurances are available and have taken detailed legal advice on the proposals. We are now satisfied that the NHSEI proposals contain enough detail to bind both employers and NHS England to make these payments with contractual guarantees that these payments will be backed by UK government, even if the employer or NHSEI did not exist in the future. We are also satisfied that members will not be disadvantaged by any unforeseen tax consequences as a result of using this scheme. Consequently, we believe that clinicians utilising this scheme have a legally binding, contractual entitlement that is backed by UK government, to receive these payments. As such clinicians will not be financially disadvantaged should they incur an annual allowance tax charge resulting from their NHS pension scheme in 2019/20.
It is essential that doctors working in primary care are covered by these proposals. NHSEI has committed to ensuring that is the case and the BMA will work with them to ensure a solution is found to provide similar guarantees for GPs. The BMA believes that a solution must be available for all doctors across the UK.
It is vital however that other pension flexibilities, such as the full recycling of employer pension contributions remain available to ensure that clinicians are able to choose the best solution for their own individual circumstances. As part of this announcement, NHSEI has clearly reiterated that trusts should make immediate use of these flexibilities, including recycling, which as outlined in Dame Pauline Philip’s recent letter was one of the ‘most effective’ options.
The BMA has led the campaign for pension taxation reform for doctors and the unprecedented action taken by NHSEI demonstrates that the pension taxation system is broken. The BMA will urgently lobby the next government as soon as it takes office to fix the problem by removing the damaging annual allowance (including the taper) from defined benefit schemes, a proposal suggested by their own advisory body, the Office for Tax Simplification. Link to NHSEI FAQs