Parliamentary select committees have recently attracted a higher profile courtesy of Dominic Cummings’s evisceration of England’s former Health Secretary Matt Hancock and, secondly, BBC managers mauling over the Martin Bashir scandal.
However, their work tends to go largely unnoticed as was the case in June when the cross-party Public Accounts Committee (PAC) published a detailed report on Public Sector Pensions. It had the lowest of profiles despite its importance. As well as affecting millions of workers, these pensions’ long-term liabilities – funded largely by taxpayers – run into hundreds of billions of pounds.
In view of the topic’s financial and social significance, it was concerning that PAC members were damning about its treatment by the Treasury. While their criticisms lacked Cummings’ venom, they referred to “the danger of a perfect storm” at younger workers’ expense, a crucial and costly “Treasury mistake” on age discrimination and the department’s “lack of curiosity about other important issues” – including ones already affecting key public services.
In particular, the PAC noted that “the interaction between the NHS Pension Scheme rules and the tax system means a large number of doctors have reduced their working hours, opted out of the scheme, or retired early.”
Evidence to the committee from the British Medical Association (BMA) quantified the problem: a four-fold increase in voluntary early retirements since 2008; the average retirement age dropping from 61 to 59 over barely a decade; and a survey finding that two-thirds of doctors aged over-55 are considering retiring within three years.
Doctors concerns over a 'mind-boggling' system
Financial factors and pension complexities appear to be central to this exodus of senior healthcare professionals. Moreover, it comes at the worst possible time as the NHS faces a massive post-Covid backlog. Yet, as the BMA told the committee, 53% of surgeons in Wales have received financial advice to work fewer hours for the NHS. Similarly, a survey by the Royal College of Physicians and Surgeons of Glasgow found that 45% of respondents had decided to retire at a younger age than previously planned, with 86% citing pension concerns as influencing their decision. These findings were supported by a hospital doctors’ union (HCSA) survey, in which 50% of those planning to leave the NHS reported that pensions taxation had been a factor in their decision.
Few pension systems are simple. But aspects of the NHS Pensions Scheme have long been regarded as “exceedingly complicated” and criticised as “mind-bogglingly” complex. Though never has it created quite so many “perverse scenarios” according to the BMA or faced such strong HCSA criticisms for “constant changes” which cause “confusion”.
Part of the problem stems from some Treasury-driven reforms a decade ago, in the early days of austerity, which sought to make public sector pensions more affordable. The PAC believes this was largely achieved, but with some unfortunate side-effects. As it concluded, “The focus on affordability means that HM Treasury has lost sight of the potential for public sector pensions to support employers in recruiting and retaining the staff they need to deliver public services” – as appears to be the case with the NHS. While the Government once had an objective for such pensions “to aid the recruitment and retention of the right people in the right jobs”, this was abolished in 2012 and, as the National Audit Office (NAO) noted in March, no replacement policy has been put in its place.
Over the same period, there has also been a decline in the value of payments into most public sector pensions. The BMA calculates that broadly similar NHS and civil service pensions now involve doctors paying almost three times more in employee contributions than equally senior mandarins. The NHS scheme compares unfavourably with those for teachers, the police and parliamentarians. As the BMA argues, it would be fairer if each scheme’s members paid the same contribution per £1 of future pension. Moreover, as the NHS’s multi-tier system is based on whole-time equivalent or annualised pay, it discriminates against sessional GPs who pay even more per £1 of pension 
Allowances, injustices and a tax 'cliff edge'
In the BMA’s view, a particular injustice arose when even a modest annual salary increase created an additional and disproportionately large allowance liability – leaving the person “financially worse off after receiving a ‘pay rise’.” The HCSA also highlighted how the current system disincentivises doctors from assuming additional responsibilities or working overtime as they risk “being pushed over a tax ‘cliff edge’.” It added: “This has especially been cited as a concern for doctors this year as many have voluntarily taken on extra work to support the pandemic response.”
Such problems have long been recognised and were due to be resolved after 2019’s General Election. While the Tories’ manifesto lacked a clear plan, it pledged an urgent review to “address the ‘taper problem’ in doctors’ pensions”.
Some welcome improvements to the tapering system were announced in 2020’s Budget as the threshold and adjusted income limits moved from £110,000 and £150,000 respectively to £200,000 and £240,000. This is an important step in the right direction that should help lift many out of the so-called ‘taper trap’.
Despite this, the HCSA maintains that this is not a long-term solution while the BMA argued “an urgent review” was still needed. The PAC expressed similar concern that pension problems were still causing doctors to cut their working hours, retire early or leave the NHS scheme entirely. They also cited an employee ‘opt-out’ rate of around 10% - 10 times more than for civil servants.
Financial guidance from NHS scheme specialists
In these circumstances, it is unsurprising that senior NHS staff feel disillusioned. Demand is growing as many mid-to-late-career medical professionals consider how to stay in jobs they love without, in the BMA’s words, being “inadvertently hit with unexpected and punitive tax charges”.
Leading authorities on the subject include Sanlam UK, which helps medical professionals to clearly understand their financial position, mitigate unnecessary tax bills and make simple choices about their future.
One of Sanlam’s in-house experts, Senior Wealth Planner Craig Miller, believes that specialist guidance on allowances will remain in demand. In his view: “Many people in the NHS risk finding that it isn’t a question of if you’ll breach the annual allowance, with all its tax implications, but when you’ll do it. Some doctors even risk breaching it repeatedly. To address this, we provide medical professionals with personalised guidance on carrying forward any unused allowances.”
Another Sanlam specialist, Katie McMahon, added: "In some cases members can benefit from strategies that involve opting in and out of the scheme periodically to maximise the benefit of the pension. We can give expert guidance, which is based on each person’s individual circumstances. It’s an incredibly complex system which drives many staff to distraction and taking suitable advice can be invaluable".
Increased capacity to meet growing demand
Optimists argue that policymakers could yet fundamentally reform the NHS scheme and address not only the exodus, but the various faults identified by the PAC’s low profile but highly important report. Such optimism is grounded in the Chancellor’s announcement of positive changes to the tapered allowance after sustained lobbying by health unions and NHS Trusts. It is certainly possible that good news could even be contained in the Treasury’s upcoming response to the PAC’s criticisms and recommendations.
On the evidence of the past ten years few are holding their breath. The steady accumulation of “perverse scenarios”, “unexpected and punitive tax charges” and a system of “mind-boggling complexity” means that demand for specialist financial planning seems certain to increase. Now an established player in this niche market, Sanlam is increasing its capacity to advise the growing numbers of medical professionals affected by the problems highlighted in the PAC’s disturbing but potentially invaluable report.
The information and opinion contained in this piece is based on our understanding of NHS pension rules and taxation as of 28th July. Any expressions of opinion are subject to change without notice. It should not be treated as a forecast, research or advice to adopt any particular action or strategy. Always seek personalised advice before taking action.
 House of Commons Committee of Public Accounts, Public Sector Pensions (HC 289), 11th June 2021 (Public Sector Pensions - Committee of Public Accounts - House of Commons (parliament.uk).
 Ibid, p. 3.
 Ibid, p. 5.
 Ibid: ‘Written evidence submitted by the BMA’, APP0002, paras 6.1 and 6.4 (BMA written evidence to the Public Accounts Committee).
 APP0002, para 6.1.
 Public Sector Pensions, ‘Written evidence submitted by HCSA’, APP0003, para 5.4 (HCSA written evidence to the Public Accounts Committee).
 APP0002, para 5.3.
 Sanlam, Wealthsmiths, ‘Are you over your allowance?’ (pp. 7-9), December 2019, p. 8.
 APP0002, para 5.1.
 APP0003, paras 4.1, 5.1 and 5.7.
 Public Sector Pensions, p. 5.
 National Audit Office, Public Service Pensions (HC1242), 19th March 2021, p. 11 (Public service pensions (nao.org.uk).
 APP0002, para 4.2.
 Ibid, para 4.3.
 Ibid, para 5.7.
 APP0003, para 5.5.
 Conservative and Unionist Party, Get Brexit Done. Unleash Britain’s Potential, 2019, p. 10 (Conservative manifesto, 2019).
 APP0003, para 3.4.
 APP0002, p. 1.
 Public Sector Pensions, p. 12.
 Ibid, p. 13.
 APP0002, para 5.3.