An NHS pensions boom will sting top doctors with five-figure tax bills, forcing many to retire early and pushing the health service close to collapse, medics have warned.
Gold-plated NHS pensions will surge in value in line with sky-high inflation – meaning thousands of senior NHS staff will be caught out by tax limits on retirement savings.
The British Medical Association has told the Telegraph that the NHS will not survive if the punishing tax rules force even more doctors to work less or retire early.
Health secretary Steve Barclay told Parliament this week that he was to meet with Chancellor Jeremy Hunt to discuss the matter. It comes as the Government needs to find £50bn of savings ahead of the Autumn statement later this month.
The value of NHS pensions grows in line with September’s rate of inflation, which was confirmed last month at 10.1pc – putting high earners at risk of breaching tax-free allowances.
Research by the BMA has found that almost half of consultants are planning to leave over the next 12 months. Vishal Sharma, chairman of the BMA’s pensions committee, said: “Many GPs and senior consultants are going to face very large tax bills.” He added: “I cannot imagine how the NHS can survive.”
Mr Sharma said there was a misconception that only senior doctors would be caught out by pension tax rules, but he said: “The truth is that it is happening to senior nurses too. These people are left with a difficult choice to retire early.”
He said rules governing how much you can save into a pension every year were still not fit for purpose despite attempts at reform.
All pensions are subject to an annual tax-free savings allowance of £40,000 and is lower for the highest earners. But a quirk in the NHS pension system means that the latest inflation figure is used to calculate the increase in pension, while the amount that can be saved tax-free has remained static. It means this year, pensions could rise by more than 10pc, exceeding the cap on what can be saved without a tax charge.
NHS pensions expert Graham Crossley, of the wealth manager Quilter, said that fixing the problem was a matter of urgency. He said: “It’s all a mess. The annual allowance is not fit for purpose in its current form.”
Under the rules, a senior consultant close to the end of their career could face a tax bill of more than £15,000 next year on their pension contributions, according to calculations from tax firm RSM. Even a doctor who has been a consultant for four years, could face a bill of more than £1,500.
Mr Hunt has previously highlighted the need for reform in NHS pensions. During his campaign for the Conservative leadership in the summer, he wrote in The Telegraph that the Government should “grant an immediate exemption for doctors to public sector pension rules that force them to retire in their 50s”.
One in six medical practitioners retired early in the 2020-21 tax year, according to a report by the Department of Health and Social Care. The exodus of doctors comes as NHS waiting lists stand at more than seven million and fears rise that the queue could keep growing until 2025.
The Treasury was approached for comment.
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