A Medical Emergency: How Pensions Are Impacting the Nhs

Recent press coverage concerning senior NHS staff and their pensions has again highlighted the difficulties that can arise for high earners and their pension saving plans.

It has been reported that hospitals have had to cancel operations, cancer scans are going unread for weeks and waiting times for patients are increasing exponentially, with waiting times already the worst on record, as consultants cannot afford to work beyond their contracted hours.

Changes to pension rules in 2016 have meant that rising numbers of consultants are receiving large bills linked to the value of their pension. It has been reported that some have had to remortgage their homes to pay the extensive tax bills. All of this has the potential to have a significant impact on the NHS.

Dr Tony Goldstone, a consultant radiologist and clinical director at Hull University teaching hospitals NHS Trust has stated: “The pensions catastrophe is an existential threat to our NHS. We’re only just beginning to see the impact of these taxes. The stark reality of the pensions taxation is now becoming abundantly clear.”

Since 2016, those who earn more than £110,000 a year have faced new limits on how much they can contribute to their pension savings. These complex rules mean that charges can be unpredictable if the individual goes over their allowance.

The system works by the Government giving tax relief on contributions to pension schemes, and allows up to 25% of the benefits to be taken as a tax free lump at retirement.

There is no limit on the amount of pension savings that an individual can build up, but there is a restriction on the amount of pension savings which a person may build up in a tax beneficial environment. There is also a tax charge if the total value of a person’s pension fund is more than the lifetime allowance.

It is estimated 4% of the UK population is impacted by issues connected with the lifetime allowance.

The lifetime allowance for the 2015/16 tax year was £1.25 million, this was reduced to £1 million for the 2016/17 and 2017/18 tax years. The lifetime allowance for the 2018/19 was increased to £1.03 million and 1.055 million for the tax year 2019/20. The level set by the government in respect of the lifetime allowance is subject to political and economic forces.

Any pension savings above the lifetime allowance are subject to the lifetime allowance charge which is currently set at 55% if the excess is taken as a lump sum, or 25% if taken as income with income tax at the individuals marginal rate also being payable.

At MSB Solitors, our team has noticed a stark increase in instructions from clients who are being stung by the financial penalties that have come as a result of these taxes. Our expers have built up an impressive network of financial advisors, pension experts and actuaries in order to help our clients navigate the often complex pension issues that can arise.