NHS Employers, which is part of the NHS Confederation, has written to Chancellor Rt Hon Nadim Zahawi calling for urgent changes to how NHS pension taxes are calculated.
Employers across the NHS are deeply concerned about the effect the current inflationary environment is having on pension tax, and the impact is having on NHS care, including meeting the Government’s ambitions to tackle the treatment backlogs.
For members of the NHS Pension Scheme, the value of pension savings is based on the growth in the member’s pension over the tax year. Pension growth is calculated by subtracting the value of the member’s pension at the start of the year (the opening value) from the value of the member’s pension at the end of the tax year (the closing value). If the member’s pension growth exceeds the annual allowance, excess benefits may be subject to a tax charge.
It has been standard practice for the NHS Pension Scheme (along with others) to increase the value of pension benefits in April based on the annual increase in inflation to the previous September.
In the 2022/23 tax year, the closing value will include the uprating of career average pensions benefits on 1 April 2023 using the annual increase in CPI inflation measured in September 2022, which the Office for Budget Responsibility has predicted will rise to 8.7%.
However, the opening value is uprated to 5 April 2023 using the annual increase in CPI inflation measured in September 2021 (known to be 3.1%). While both the closing and opening values are uprated for inflation (with the intention of removing pension growth due to inflation from the calculation), for the 2022/23 tax year in particular, the inflation figures used will be dramatically different. Assumed pension growth will be incurred by rapidly increasing inflation rather than above inflationary pension growth.
Danny Mortimer, chief executive of NHS Employers which is part of the NHS Confederation said:
"The pension tax issue with the taper was fixed for most staff but there is a toxicity around the annual allowance that continues and this latest inflation issue is deterring doctors from taking on the extra work needed to clear backlogs. "To clear the backlog, we are going to need doctors to do extra shifts in the evenings and weekends and to do this for years to come. Thousands of doctors could potentially be impacted by the inflation issue."
The letter asks the Chancellor to take two urgent actions
- Allow pension growth across both the NHS Pension scheme and the reformed scheme to be aggregated before it is tested against the annual allowance.
- Amend the calculations so that pension growth, which is solely caused by rapidly increasing inflation within the tax year, is not included and tested against the annual allowance.
We are the membership organisation that brings together, supports and speaks for the whole healthcare system in England, Wales and Northern Ireland. The members we represent employ 1.5 million staff, care for more than 1 million patients a day and control £150 billion of public expenditure. We promote collaboration and partnership working as the key to improving population health, delivering high-quality care and reducing health inequalities.