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Doctors warn of ‘massive impact’ on workforce as Sunak freezes pension lifetime allowance

By 03/03/2021No Comments

Delivering his second budget statement in just over a year as chancellor, Mr Sunak confirmed that the pensions lifetime allowance would be maintained at its current level until April 2026 along with thresholds for inheritance and capital gains tax.

Doctors’ leaders and the BMA have warned that a freeze on the lifetime limit – which would otherwise have risen broadly in line with inflation – will force more doctors to reduce their working hours or take early retirement to avoid punitive tax bills.

Responding to the announcement on Twitter, BMA pensions committee chair Dr Vish Sharma called the freeze ‘complete lunacy’.

NHS pensions

Dr Sharma wrote: ‘This is going to have a massive detrimental impact on the NHS just at the time when doctors are needed the most. This is complete lunacy especially as it will not generate much additional revenue – people will retire sooner to not pay the tax.’

The budget statement also set out plans to invest an extra £1.65bn to support rollout of the COVID-19 vaccine campaign in England, along with a further £50m to increase UK vaccine testing capability. The freeze on tax allowances came as part of measures to ‘get public finances back on track’ alongside government commitments to extend measures such as ‘furlough, self-employed support, business grants, loans and VAT cuts’.

Income tax personal allowance and the higher rate threshold will rise next year – but then will also be frozen until April 2016, the chancellor said.

Corporation tax will rise from 19% to 25% – a level the government said would ‘remain the lowest rate in the G7’ – but will kick in incrementally on profits over £50,000, with businesses only paying the full 25% if their profits are in excess of £250,000. The change could affect GPs or practices that operate as limited companies.

GP workforce

BMA pay and pensions adviser Dr Tony Goldstone wrote on Twitter that Mr Sunak had ‘ignored’ warnings from the BMA over the impact of a freeze on the lifetime allowance.

He said: ‘All of this at a time when the NHS has made enormous sacrifices in the pandemic and need to tackle a record backlog in non-COVID care. I am afraid that the effect of freezing [the lifetime allowance] will have entirely predictable effect.’

Dr Goldstone warned health and social care secretary Matt Hancock there could be ‘no hiding behind claims of unintended consequences’.

A BMA poll of more than 6,000 GPs and hospital doctors in 2019 found that that 31% had reduced their hours due solely to pension tax charges – while 57% were considering early retirement for the same reason.

Early retirement

Numbers of GPs taking early retirement have tripled over the past decade– a rise the BMA has blamed in part on tax charges – and the GP workforce has declined over the past year despite government promises to increase it.

The government increased the threshold for the annual allowance by £90,000 in last year’s budget, a measure welcomed by doctors’ leaders and medical accountants – but high-earning doctors continue to be affected by heavy tax charges that can mean they lose more in tax than they would earn for taking on extra work.

MPs called earlier this week for a complete overhaul of the pensions tax system – and the BMA has warned that the annual allowance mechanism has no place in defined benefit schemes such as the NHS pension scheme.

Parminder Gill, from financial services mutual the Wesleyan Group said freezing the lifetime allowance created a less favourable tax regime for pension savers and were a ‘real kick in the teeth to high-earning clinicians who will have been working around the clock on the frontline of the coronavirus pandemic’.

He added: ‘These are individuals who have historically been at risk of breaching their allowances and being stung by punitive tax charges. The constant tinkering with the lifetime allowance makes it difficult for doctors to plan for the long-term and could ultimately discourage them from saving into a pension.’



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