Nosy NHS pensions question

[Jazz12]

Our friends are doctors. He is a GP and she is a hospital consultant. They are both 45. I always assumed they are on final salary pension. They say rules changed and they aren’t!
Are NHS doctors not on final salary pensions? Is that a thing of past??

Aren’t they just! The problem being that a lot of them don’t fully understand it themselves and therefore their “advice” isn’t necessarily helpful!

It’s not missing the point. The doctors get to this tax point very early. They then go part time or pick and choose what they do. Often by mid 50s. They have found a way to pay the tax!!! How do you think everyone else pays it? Why are doctors special??? They have very generous pensions. They pay the tax.

I do think the Tex threshold is now too low but only the very well off in pension terms pay it.Maybe save up like everyone else on a very high salary with a generous pension? It’s a genuine question. How do you think other people pay it? Or did you think only doctors pensions were taxed like this? @Mango101

@TizerorFizz

I'm sorry - you're still not understanding. The reasons that this is a problem effectively unique to doctors (and a few others) is to do not only with their income bracket, but crucial specifics of their pension scheme.

If you interested in finding out more, follow Tony Goldstone on Twitter (or read the posts above carefully :))

You are missing the point that the UK cannot afford to be losing Doctors at this rate. Even if they stay and go part time that is too many lost hours to the NHS.

How would contacting an MP change much, this has been known about for years, the impact has been there for years with people paying to go to work, inflation has exacerbated it. MPs have shown little desire to solve it so far.

The taxable pension pot applies to everyone if the lot is big enough. Why would the uk wish to deter anyone from working who is a high achiever? Do we just want people with less experience in all professions? I would suggest not.

The lifetime limit was introduced by Labour. Gordon Brown in 2006. Labour. Set at £1.5 million. The Conservatives have stupidly lowered it.

No one has said how anyone is supposed to pay it. The NHS has a scheme for doctors, but what about the self employed? As a nation we need high earners of all types. The 1% top earners pay 29% of all income tax. We need them to work. Or the rest will have to pay more!

Well yes why indeed, but as people have already said the government has no appetite to resolve this so here we are.
And as others have already tried to explain, this particular issue is pretty much unique to doctors, so your DH will not face the same.
Doctors don't think they're special. In fact I think they'd love to be treated the same way as others. But they aren't.

Why do you think DH won’t pay the tax? Please explain how he gets out of paying. We would love to know. And from what sum of money? The whole issue is about not wanting to pay the tax at an early age and the mechanisms introduced for paying it - from earnings. I agree it’s a mess but not just for NHS staff.

I've found a page that appears to contain proposed solutions to the doctor pension problem. It seems that the solutions don't include the blindingly obvious one of allowing them to have extra salary instead of pension accrual. Can anyone explain why?

www.gov.uk/government/news/action-to-bolster-nhs-workforce-and-retain-senior-doctors

@TizerorFizz

"Unlike private sector workers, NHS staff cannot control how much goes towards their pension each year, which means the only solution is to reduce working hours"

www.telegraph.co.uk/pensions-retirement/news/doctors-forced-retirement-receiving-9000-pension-tax-bills/

I wonder if I've understood the consequence of exceeding the annual allowance correctly.

If a doctor earns extra such that £100 in excess of annual allowance is accrued by his pension, he pays tax at (say) 40% on that. Let's say the pension pays the £40 for him, giving him a debt of £40 to repay when he retires. When he retires, the £100 that went into the pension is taxed at 40%, so he gets £60, out of which he repays £40, so he gets £20 of extra pension. Effectively he's been taxed at 80% on his overtime.

I'm sure the figures aren't exactly right, but am I right in thinking that someone who is a higher-rate taxpayer both when he contributes and takes his pension is taxed at penal rates?

This seems like a flaw in the design of pension rules. Surely it would make more sense for any over-contribution to be paid out and taxed as salary immediately after it happens, and the pension to be reduced by a corresponding amount.

@TizerorFizz is it the annual allowance or the lifetime limit that you’re talking about?

That’s two separate issues.

The lifetime limit will indeed affect anyone who’s saved enough over their career, not just NHS doctors.

The annual allowance is the one that’s having the biggest immediate effect on senior doctors right now.
The only way a senior doctor to has to avoid the annual allowance pension tax charge, is to work less hours or to leave the pension scheme altogether.
A private sector worker, or a self employed person, as a general rule, has a lot more control over how much they save towards their pension a year. It’s a lot easier for them to avoid falling foul of the annual allowance pension tax charges while still paying money into their pensions.

tizerfizz you really do not get it - I am 49, two of my colleagues at 44 and 45 are in the same position.
I pay 13.5 % into my pension - can not reduce it, to reduce it I need to work less hours.
It has taken 14 yrs post graaduation from medical school to get me to consultant - I am at my most experienced, knowledgable and now I will cut my hours depriving patients of my skill set - which will not be replaced for xxxx yrs.
If like my sister in land development - I would reduce my contribution not my hours - happy to do that but not an option in the nhs.
i pay 13.5% but will not get the value of that as my outgoings from the pension are pegged at the equivalent of 9-10% - so another bloody tax already.

No one is saying this is unique in the nhs for nurses, managers doctors the options to control what goes in is taken way from you bar dropping out of the pension scheme.

If you think having take home pay of 13K per annum is adequate for 60-80hr weeks, no recourse to benefits - because I earn too much then we are living on different planets.

I am a single mum - there is no safety net for me.

I’ve no idea. 🤷🏻‍♀️

Why are you spending time worrying about what pension others may be entitled to? 🤷🏻‍♀️

Are you comparing to your own pensions provisions ?

@TizerorFizz doesn't understand the issue fully but doesn't seem to be taking this on board.

That’s not necessarily true for those not fortunate enough to be in a defined pension scheme though, is it? I’m 51, and I reached the lifetime allowance a few years ago. I still work, because frankly the return on just over a million, even if you assume 4% drawdown, is not enough to maintain my lifestyle. So I just invest/save more from taxed income so that I can retire in comfort.

the problem with NHS pensions isn’t a tax problem, they are treated the same as non public sector workers from a lifetime allowance and annual allowance perpective. We all get the same. But in the private sector employers have adapted and offer different packages to those who opt out of the pension, my employer for example contributes 10% of earnings into a pension. But for those who’ve hit the LTA we are paid the equivalent to the employers contribution as part of salary. Sure, it’s taxed, but I can invest as I see fit at that point. The NHS has an employer problem, not an HMRC problem, because they haven’t come up with alternative solutions to motivate nhs workers to keep working.

I think that’s fair enough… if there was no LTA but the same £40k annual allowance then I, as a 45% tax payer, would get £18k of tax relief every year. Given the average income in the country is about £30k, on which you’d pay around £4k tax, that’d mean that nearly 5 average taxpayers would be working and paying tax just to cover the tax relief on my pension contribution. That just doesn’t seem right.

You can stop contributions but the index linked incremental increase each year is still being paid into pension pot. For example if inflation remains at 10% this year my pension will increase by 60k+. Even if I don’t contribute I will still be taxed on anything above 40k. I work 2 days a week so there is a potential for my tax bill on the pension increase to be almost my yearly salary.
Fortunately I have carry over from the last three years which can be offset against the increase but if I had been working full time since 2019 then I would be paying a largish tax bill.
I am retiring next year at 59 so I can avoid the tax issue.
The crux of the problem is the life time contributions limit and the inflexibility of the contributions. With historically very low inflation the yearly increase has not been significant, but with soaring inflation every doctor and dentist over 50 with an NHS pension is facing this dilemma. Most are retiring a couple of years earlier than planned since it is more cost effective than risking the stealth tax.

@Tryingtokeepgoing
yes they know it’s an “employer problem” unfortunately their employer is the Government! They set this stealth tax.

But they set it for everyone. It’s an employer issue. Of course there are ways around it! Or do the decent thing and pay the tax! These people are high earners. They have gold plated pensions. Looking for tax avoidance is not morally right when they are paid by the state and so are the employer contributions.

WTAF? This is so ignorant it's not even worth responding to. Just hope you don't need NHS care from a doctor any time soon.

Tax avoidance?

Do you understand that there are cases where the pension tax charges are so large, that doctors pension contributions are taxed at a rate of more than 100%?

Have you read any of the explanations on here. I can't work out if your just stupid,or so belligerent that you are determined that doctors are greedy lazy tax avoiders. There are so many doctors on here who've tried to explain that pension contributions that they have absolutely no control over are landing them with tax.bills that can wipe out their yearly salary.
What worries me is how many others in the general population will decide that you're right?

Well good luck when you need a Dr and they’ve all gone 🙄

@unpocamasporfavor I once recall someone assuming I didn’t pay tax because I was a Civil Servant. 😂

I even had a friend assume pensions were paid tax free and was horrified when I explained even the State pension is taxable income.

It isn’t fair and it does need looking at, from a selfish point of view because of the impact on resource when the NHS has so many vacancies.

Perhaps get rid of the allowances and introduce a cap on the tax free element of employee pension contributions might be an option. E.g first £5k each year is tax free the rest comes out of taxed pay.