The pensions lifetime allowance has been scrapped by the Government in a series of measures announced in today’s spring budget, which accountants have said will help to tackle the workforce issues faced by GP practices.
The Chancellor, Jeremy Hunt, today set out his plan to try and reduce early retirement among NHS staff by first abolishing the pensions lifetime allowance and second, increasing the annual allowance from £40,000 to £60,000.
In his speech in parliament, Mr Hunt said: ‘I have listened to the concerns of many senior NHS clinicians who say unpredictable pension tax charges are making them leave the NHS just when they are needed most.
‘So today I will increase the pensions annual tax-free allowance by 50% from £40,000 to £60,000.’
He added: ‘Some have also asked me to increase the lifetime allowance from its £1 million limit. But I have decided not to do that. Instead, I will go further and abolish the lifetime allowance altogether.’
This move ‘removes almost all NHS scheme members from pension allowance tax charges’, according to Nick Nesbitt, partner and head of medical financial planning at accounting firm Mazars.
‘It’s a good news day for doctors and GPs,’ says Mr Nesbitt. ‘Now only the very highest earners will need to be aware of the thresholds. Whilst the Chancellor has not abolished the tapering of the annual allowance for the highest earners, further increases to the level at which such tapering applies will remove more doctors from risk of tapering.
‘The spring budget changes, with the wider upheaval of the NHS pension scheme, will change the very face of the workforce and should tackle some of the staffing challenges that have plagued the NHS in recent years.’
He added that it was now a good time for GPs to rethink their pension and retirement strategy and to seek advice to ensure these match up to their long term goals.
Alec Collie, head of medical at specialist financial services mutual for doctors, Wesleyan, said: ‘These measures should reduce the number of doctors having to leave their pension scheme, cut their hours or quit the NHS altogether because of high pension tax bills.
He added that those who may have already left the NHS pension scheme to avoid these charges should ‘consider getting advice on re-joining the scheme to get access to valuable benefits’.
Andrew Pow, from the Association of Independent Specialist Medical Accountants, also welcomed the pension changes.
‘Together with the recent announcement on retirement flexibilities and plans to remove the impact of inflation within the annual allowance calculation, this is a positive and long overdue change,’ said Mr Pow.
He added: ‘While some high earning GPs will continue to be impacted by annual allowance charges, the changes…mean that the vast majority of GPs will no longer be affected’.
The BMA pensions committee and chair of the consultants committee, Dr Vishal Sharma, said: ‘It’s also very welcome that the Government has committed to addressing the anomaly of ignoring any negative pension growth and rectifying this will ensure NHS staff can appropriately utilise their full annual allowance.’
However, he said that the changes do not ‘fix’ all of the concerns they have about the pension scheme, with some doctors still affected by the annual allowance, and called for continuing discussions with the Treasury.
Spring Budget pension reforms
- The Government will increase the annual allowance from £40,000 to £60,000 from 6 April 2023. Individuals will continue to be able to carry forward unused annual allowances from the three previous tax years.
- The Government will increase the money purchase annual allowance from £4,000 to £10,000 and the minimum tapered annual allowance from £4,000 to £10,000 from 6 April 2023.
- The adjusted income threshold for the tapered annual allowance will also be increased from £240,000 to £260,000 from 6 April 2023.
- The Government will also remove the lifetime allowance charge from 6 April 2023, before fully abolishing the lifetime allowance in a future Finance Bill.
- The maximum Pension Commencement Lump Sum for those without protections will be retained at its current level of £268,275 and will be frozen thereafter.
Meanwhile, the Department of Health and Social Care launched a pension consultation yesterday on draft plans to facilitate the second part of the McCloud remedy.
This is to fulfil the requirements in the Public Service Pensions and Judicial Offices Act 2022, which put in place a legal framework to rectify the unlawful discrimination identified by the McCloud judgment.
This ruling found that transitional protections introduced to public service pensions in 2015 were discriminatory because they allowed older workers to continue building pension benefits in older pensions schemes, while younger members were moved into reformed schemes.
The consultation, which is open until 6 June, will remove the effect of the transitional protections by offering eligible members a choice over the benefits they wish to receive between the period 1 April 2015 and 31 March 2022.
This is by the following measures:
- Returning members who moved over to the 2015 scheme back into the legacy scheme for their pensionable service effected by the discrimination during the remedy period, from 1 April 2015 to 31 March 2022.
- Offering a choice of whether members receive legacy scheme benefits or 2015 scheme benefits for their remediable service benefits, both of which are payable from the legacy scheme.
The deadline for this to come into effect is 1 October 2023.
This follows measures to remedy the first part of the McCloud ruling, which moved all active members to a reformed pension scheme from 1 April 2022 to ensure equal treatment.