Government urged to end pension contribution tax trap for senior civil servants as well as doctors

Unions say tax treatment of pension contributions is leading civil servants "to incur significant tax burdens simply by saving for the future"

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By Richard Johnstone

07 Aug 2019

The government has been urged to extend proposed freedoms over pension contributions for hospital consultants to senior civil servants, to end a pension tax trap faced by some top officials.

The government today announced that it would consult on giving senior doctors full flexibility over the amount they put into their pension pots, to tackle concerns that hospital consultants are turning down extra shifts that could lead to an additional tax bill.

A series of recent cuts to the amount that individuals can save tax-free in their pension has reportedly discouraged high-earning doctors from working extra hours that would lead to them making additional pension contributions, which could lead to an additional tax bill.

Around a third of NHS consultants and GP practice partners are understood to be affected by the reforms.


The annual tax-free allowance of how much employees can pay into their pension scheme was lowered in 2011-12 from £255,000 a year to £50,000, followed by a further cut in 2013-14 to £40,000.

An additional taper rate was introduced for those earning above £150,000 in 2016-17, which meant the tax-free limit could be as low as £10,000 for those earning £210,000 or more.

Any payments above the allowance cap could lead to a one-off tax bill, added to a worker's tax liability for the year. A survey of top doctors, predominantly consultants, by the NHS Confederation found that 42% had reduced the number of shifts they do since the taper was introduced. NHS Confederation chief executive Niall Dickson said this meant “operations are being delayed and cancelled”.

In response to the concerns, the government today said it would enable those affected to decide when to stop paying into their pension scheme to avoid hitting the limit.

The flexibility would allow senior clinicians to decide how much pension to accrue at the start of each year, with a corresponding decrease in the accrual rate, so that they can plan to take on additional work without paying extra tax. For example, they could choose to make 30% contributions for a 30% accrual rate, or any other percentage in 10% increments depending on their financial situation.

Public sector review

As well as announcing the plan for NHS staff, the Treasury said it would “review how the tapered annual allowance supports the delivery of public services such as the NHS”.

The Senior Salary Review Board, which advises government on pay and conditions for senior civil servants, has said “the current pension taxation regime poses a significant recruitment and retention risk to senior staff across the public sector”.

In a report last month, the SSRB said the tax rules meant “there was hardly any difference in take-home pay for a civil servant working full time contributing to the Alpha [final salary] pension scheme relative to someone working 80% of full time, due to the former facing a higher effective tax rate”.

“The reason for this stemmed from the annual allowance taper where, despite the full-time civil servant accruing a larger pension in the year, they were subjected to the annual allowance tax charge.”

The changes “have had a significant negative impact on total net remuneration" for the higher-paying roles the SSRB oversees, including permanent secretaries, it said.

“We again recommend that pension flexibility should be examined as a matter of urgency, with the aim of reducing the perverse incentives that senior public sector employees may be facing.”

Responding to the SSRB report last month, then-Cabinet Office minister David Lidington said only that the government would “keep under review the impact of the interaction between civil service pensions and the current tax rules on recruitment and retention”.

The FDA trade union representing civil servants today called on the government to extend the planned freedoms for senior doctors to the civil service.

Lucille Thirlby, assistant general secretary at the union, said the flexibility for doctors “is a major win for these hard-working members of staff”.

But she added: “Meanwhile, in the civil service, the Cabinet Office are allowing their people to incur significant tax burdens simply by saving for the future. As it stands, individuals may be left choosing between a promotion and a healthier pension pot.

“The government has ignored the Senior Salaries Review Body's recommendation for pension flexibility. The FDA has highlighted this issue again and again, both within our submission of evidence to the SSRB and within the Civil Service Scheme Advisory Board.”

She said that NHS managers, who are represented through the Managers in Partnership specialist union in a joint venture between the FDA and Unison, would also not benefit under the changes.

“The NHS is coming up with solutions to deliver greater pension flexibility to their doctors. Why are they not doing the same for their managers, and why is the Cabinet Office not doing the same for its senior civil servants?”

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