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??

For heavens sake! If you have the pension, you pay the tax. It’s how it works. I don’t care who people are. I don’t put them on pedestals. Everyone pays if they have big pension pots. Such stupid comments. Good luck when you cannot find people to manage your pensions. Or design your houses. Or design infrastructure. Or fly aircraft. Or sort out your divorce. Such ludicrous statements is why this country is in a mess.

I fully understand most people cannot plan how big their pension pot is. They just cannot. Of course I realise some employers don’t have this sorted but to suggest it’s only nhs employees who have issues is ludicrous. FYI: people with high earnings and high pension pots are expected to pay tax. I think the tax threshold is way too low but continually suggesting ways to avoid paying tax by the wealthiest pension Holders sucks. Who is paying for this benefit you all want? Oh yes. The poorer tax payer. They pay the employer contribution and get part time doctors. Looks like lose lose to me.

No one is suggesting that doctors shouldn’t pay tax on their pensions.

What people are saying is that the amount of pensions tax doctors are paying is disproportionately high.
In some cases the amount of tax they’re being asked to pay is as much, or greater than the amount of pensions contributions that have been made by the doctor plus the employer for that tax year.

Plus, given the way the doctor’s pensions work, it’s just about impossible for doctors to work out in advance how much the pension tax will be for each tax year.

Incidentally, there’s been similar pension tax problems for judges.

In response, the government has introduced a tax unregistered pension scheme for judges.
That means that judges do not get tax relief on their pension contributions - so pay an max of 45% tax on their contributions as they go - and in return, they’re exempt from the annual and lifetime allowances.
So no unpredictable surprise pension tax charges for judges any more.

Are you stupid or disingenuous? There's no tax avoidance you bloody idiot. It's an unworkable unreasonable tax on possible pension growth not actual money received. Read the thread, Google it. And then remove that huge chip from your shoulders it must be really painful

I've found it very interesting that they were prepared to fix the issue for judges but have resisted doing the same for doctors.

Oh, absolutely.

There was a petition a while back about making the NHS pension tax unregistered, like the judges pensions.
The official response was along the lines of the government wouldn’t consider this, as most NHS workers are paid too little for annual allowance tax charges to be an issue, so it’d be a bad deal for the lower paid NHS workers.

Which is a fair point, a tax unregistered pension scheme wouldn’t be a good option for every single NHS employee, but I struggle to see why they can’t retain the NHS pension as it stands for the lower paid NHS workers, whilst also giving the higher paid NHS workers (such as consultants) the option of choosing a tax unregistered scheme.

No, their employers is whatever NHS trust they work for.

All pensions are are form of tax avoidance, and tax avoidance is perfectly legal. To contain the cost of it however, there are limits. One is the annual allowance, and 2 is the Life Time Allowance. Both apply to everyone, not just doctors and nurses. Anyone who’s annual contribution exceeds £40k is taxed the same way. Anyone in a final salary pension who has a salary increase can end up with an annual contribution higher than £40k and will be taxed the same way, because the increase in future benefit needs to be paid for in the year that it increases.

It’s not base on “possible pension growth” but based on the actual increase required to fund the effect of a pay rise, using the same rules that apply to all final salary pension schemes. A £10k pay rise in a final salary scheme mens the scheme is committed to pay an increased pension from retirement, and the fund required to pay that has to increase. It’s not unreasonable that the beneficiary has to pay.

And the way the LTA is calculated already favours final salary schemes as it assumes a rate or return that in practice cannot be achieved by a defined contribution scheme. You’d need nearer a £2.5m fund to purchase an annuity providing an income stream anywhere near that you’d get from a final salary pension that had hit the Life Time Allowance.

Anyone who breaches the lifetime allowance will be taxed the same way. Why should doctors and nurses be treated differently, and why should taxpayers bear the cost? As I posted earlier, it already takes the tax from 5 or so taxpayers to cover the cost of one additional rate tax payers tax relief on the £40k annual allowance. How much should that be increased to? 10 tax payers for every additional rate one? There are 600,000 additional rate tax payers I think - that’s mean 20% of all taxpayers could be working just to cover the tax relief for 2% of taxpayers. Doesn’t leave much to pay for schools, health, state pensions or anything else really does it?

So @Tryingtokeepgoing do you think doctors should have to pay to go to work as some are at the moment?

They’re not paying to go to work though, are they? That’s just spin. They have a tax bill because they have been given a guaranteed increase in future income for the rest of their lives, which is equivalent to a huge lump sum payment now. As would any other high earner with a defined benefit scheme.

The solution as posted above is not to burden tax payers even more by making an exception, or quite frankly raising the annual and life time limits, but to either do what the private sector does and make different arrangements, or opt for an unregistered scheme. But the doctors union knows that most staff would be worse off under an unregistered scheme. I’d love an increase in the LTA or annual allowance. But I know it’s unreasonable to expect tax payers to pay for it. So I have to provide for my old age out of taxed income now. Why shouldn’t well paid doctors do the same?

You’re completely overlooking the fact that employers (ie the govt) pay contributions of around 20-30% salary into DB schemes. That’s why they’re so generous. Employees pay in around 5-10% on average.

in the private sector the typical worker pays in 5% and receives 3% in employer contributions. They also bear all the risk associated with investments, inflation and longevity (how long they need to make the money last).

There is absolutely no question that public sector pensions are infinitely better than any other pension available, regardless of the change from final salary to CARE.

As for the AA/LTA, the reason for this is that contributions are tax free at your marginal rate to a certain limit. This means the more you put in the more the govt is contributing on account of the tax that you are not having to pay. The highest earners and those with the highest pensions benefit most from these allowances, far more than an average salary worker who would pay less tax. So there is an element of free money in there as well, and the more you put in the more “free money” you get (until you hit your caps).

How many people in receipt of an NHS pension will have earned £100k for every year of their career???

The allowances are capped at the level at which the pension is likely to provide enough for people to live on comfortably in retirement … after which govt sees no reason to subsidise it.

Not just the NHS but many large private companies switched from Final salary to a career average pension similar to the NHS, it's still good though. Very few if any actual final salary pensions left now.

either do what the private sector does and make different arrangements, or opt for an unregistered scheme

How?
Doctors can’t choose what proportion of their salary goes into the pension scheme. They can’t choose to reduce their pension contributions in exchange for a reduced pension.
They can’t opt for a tax unregistered scheme because there isn’t one available to doctors.
If they’re at the point where they’re starting to get annual allowance pension tax charges, then opting out of the NHS scheme and starting to contribute to a separate private pension instead has the potential for an even more complicated pension tax position.

The only way around it is for doctors to reduce their working hours.

I agree we need a better solution - I think the only choice is to allow people to opt out and make their own arrangements once they near their allowances.

It doesn’t take away from the fact though that the reason they’re in this position is because the pensions are so generous. The problem is that you can’t waive allowances just for certain sectors otherwise essentially you are just continuing to give more free money. So the only option is to make it more complex by allowing them to opt out.

Individual trusts do not control the tax rules. How strange that you think NHS staff are not employed by the Government.

You can waive allowances , the judges have had their pension issues sorted but the governments won't do the same for the NHS consultants . It's a ridiculous anomaly that disincentives a very necessary workforce .

Well of course the trust doesn’t control the tax rules. How strange that you think the tax rules should be different for doctors than the rest of us ;)

Ultimately of course they are employed by the government, as the government funds the Trusts. But if the Trusts cared enough they could change their terms of employment, as those in private are sector did when Gordon Brown destroyed final salary pensions for most of the rest of us.

Many, either deliberately or just because they don’t understand, are confusing the tax system, which applies to all of us, with terms of employment, which employers could, if they wanted, change. Why should doctors, who are well paid anyway, get more tax breaks than the rest of us? Of the 600,000 or so additional rate tax payers I’m sure many are doctors. But not the majority by a long way. And the rest of us have had to make alternative arrangement to fund our old age within the current tax system.

Most of us can only have a pension fund of £1.1m tax free, which while a lot is not generous. Those in final salary schemes can already have the equivalent of more than twice that because of the way HMRC values final salary schemes. I don’t know how anyone can justify pouring more money from the average tax payer into a very small number of highly paid peoples retirement. And I say that as someone who would benefit massively if they would change the rules!!

@Soontobe60 I was responding to Underscore21 who said you would have to have worked for the NHS for 40 years, be in the 1995 scheme and earn £100k in the last 3 years to get a Pension of £50k a year.

I was explaining the new scheme accrual rate is generous by providing 3 illustrative salaries I.e. £30k, £50k and £100k, and that a pension of £50k is still possible when you include the fact each year is revalued by adding CPI + 1.5%.

Remember this is a career average scheme so it is the average over 40 years I.e. someone earning £150k a year for 5 years £100k for 5 years £75k for 5 years £50k for 10 years and £30k for £15 years has an average salary of £64k per year. Then you add on each year CPI+1.5%.

Ultimately of course they are employed by the government, as the government funds the Trusts. But if the Trusts cared enough they could change their terms of employment, as those in private are sector did when Gordon Brown destroyed final salary pensions for most of the rest of us.

I thought that the NHS pension scheme was the same for all NHS staff regardless of what trust they work in? So I thought that the individual trusts don’t have the power to change terms of employment relating to pensions? Have I misunderstood that?

@Pterrydactyl you are correct the pension schemes are national and a trust either uses them as set up or opt out. Opting out is not an option for a trust but is for employees.

And the trust could, if it wanted to, put alternative arrangements in place for those that opted out, as all employers can. But that’s not what the doctors lobby want. They want to stay in the scheme, with its generous benefits, and have the additional cost of that borne by those that have no way of getting the same benefits because the tax system, quite rightly, limits the amount of tax relief an individual can get.