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by Rebecca McQuillan
24 December 2019
In context: doctor's pensions

In context: doctor's pensions

Whopping great pension tax bills are putting some doctors off working extra hours, at a time when the NHS really needs them.

So what’s the story?

Whopping great pension tax bills are putting some doctors off working extra hours, at a time when the NHS really needs them.

The NHS is under pressure because of rising demand and staff shortages: there were 475 unfilled consultant posts in Scotland at the last count. 

To make matters worse, some consultants have been cutting their hours, or retiring early, because they get penalised financially for their extra work. 

This is because of the delayed effect of Treasury tax rules brought in by former Conservative chancellor George Osborne that have resulted in them receiving shock tax bills if their earnings push them over their tax-free allowance for pension contributions.

One problem is that the tax-free allowance ‘tapers’ each year from £40,000 to £10,000 for high earners. Anyone going over the limit has to pay a hefty charge to the Treasury.

They’re earning so much that they’re having to pay more tax? Boo hoo!

Admittedly, it sounds like a problem most of us would like to have, a pension pot that’s so big you start accruing extra tax. But this isn’t about doctors getting taxed a bit extra on anything they earn over the tax-free allowance; it’s about some of them seeing the value of extra work wiped out and even being charged for doing overtime.

Many have received five-figure tax bills out of the blue. The formula for calculating how much tax they are liable for is so fiendishly complex they didn’t realise they had breached the limits. 

BMA Scotland gives the hypothetical example of a doctor in a shortage speciality who works some extra weekends to cover for a sick colleague. She gets paid £2,000 for it. But because this work triggers various penalties relating to her pension, she ends up incurring £9,480 in extra tax, payable now, please. Many doctors don’t have that kind of cash on hand. Understandably, it feels to them like a slap in the face for their hard work.

So they’re calling it quits?

Exactly. And that creates its own problems. A survey by the Royal College of Surgeons in October found that 69 per cent of surgeons had reduced their hours to avoid the charges.

This has been happening just when we need senior doctors to work as much as possible in order to drive down waiting lists. 

Didn’t the Scottish Government do something about this recently?

It did. Pensions are a reserved matter, dealt with by Westminster, so the issue affects doctors all over the UK. However, health secretary Jeane Freeman announced last month that the Scottish Government would introduce a temporary fix to mirror what is being done down south.

Under the plan, doctors can opt out of the NHS pension scheme for a while and have their employer contributions paid into their ordinary salary. This means they avoid incurring huge pension tax liabilities.

OK, so that’s that sorted, then.

Not really. The scheme will only last until 31 March. At the beginning of the new financial year, unless the pension tax system has been reformed, then the old trouble will kick back in. 

Can’t the Treasury just change its rules?

It’s horribly complex and jargony, and so far, the UK Government hasn’t come forward with a simple fix. The rules apply to everyone, by the way, not just doctors, but they’re having such a drastic effect on the NHS because of the way they interface with the NHS pension scheme for doctors.

You used the word ‘interface’.

I said it was jargony.

The Treasury is reviewing the offending rules, the so-called annual tapered pension allowance (oops, more jargon), but while everyone agrees there is a problem, we don’t yet have an agreed solution.

But three months is ages, right? 

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Read the most recent article written by Rebecca McQuillan - The Holyrood baby turns eight: There’s no end to the cost-of-living crisis for Kirsty.



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