One of the biggest talking points with higher earning clients working in the NHS has been the Government’s tax charges on pensions.
The NHS Pension Scheme has undergone quite drastic changes in recent times.
The annual cap on how much pension pots can increase by, tax-free, has been set at £40,000 since 2016.
GPs and consultants are therefore hit with tax if they attempt to grow their pension savings by more than this in one year.
Alongside this, the Government brought in new rules regarding the amount of tax-free pension benefits that can be built up over a lifetime – cutting the limit from £1.25million to £1million.
Then there were changes to the amount of tax relief on pension benefits that the highest earners could gain. It means the tax-free limit was cut to as low as £10,000 for those earning the most.
The upshot of the changes was a growing number of the highest earning medics saw no reason to carry on working until retirement age, while others opted to reduce their clinical hours to avoid the pension charges.
It seems that the Government has listened and is proposing new reforms aimed at trying to stem the tide of retiring GPs.
The thrust of the reforms focus on allowing NHS employees the chance to build their pension pots more gradually, thereby avoiding charges.
Currently, there is no flexibility with the highest earners required to pay 14.5 per cent of salary.
The immediate reaction from GPs has been somewhat underwhelming with one GP saying: “You will take a bit more home at the end of each month by avoiding tax bills – but your pension is halved. That doesn’t seem very generous or like a way of encouraging me to work harder.”