The Annual Allowance on public sector pensions limits the increase pension benefits can build up every year. If this limit is exceeded, individuals have to pay a tax charge, which is tapered. This means that for every £2 of adjusted income over £150,000, an individual’s annual allowance is reduced by £1. 

This tapered Annual Allowance, introduced in 2016, has resulted in many doctors and other senior NHS staff turning down extra work and even cutting their hours. According to a survey conducted by the NHS Confederation, 42 per cent of senior medical professionals (and these are mainly consultants) have reduced the number of extra shifts they do, because the only way they can avoid exceeding their allowance is to either reduce their hours or quit the NHS pension scheme.

The NHS Confederation says scrapping the tapered Annual Allowance would certainly help the situation. The Confederation also says that the further lowering of the standard Annual Allowance to £40,000 has discouraged senior staff from continuing to pay into their pension - and those that do continue to pay in can be hit with massive tax bills.

The government is consulting on the idea of giving senior doctors and clinicians flexibility to halve their pension contributions, to help mitigate their risk of tax charges.

Niall Dickson, NHS Confederation chief executive, said: “The current proposals are not enough to tackle the problem – what we need is a more wide-ranging set of reforms which do not seek to penalise hard working professionals, many of whom have devoted their careers to public service in the NHS, providing essential services and care to patients.” 

The hard truth is that highly experienced specialists who are vital to the public sector need incentives to put in the extra work. Without such incentives, they may seek work elsewhere. And we need the best people in our NHS.

If you want advice over your pension, whether you work in the NHS or elsewhere, please get in touch on 01246 435 996.  

No individual investment advice is given, nor intended to be given in this article and liability will be accepted in respect of any action you may take as a result of reading this article. If you are unsure you are urged to take independent investment advice.