Doctors are refusing to work extra shifts to reduce hospital waiting lists in the UK because the over time is triggering extra pension tax for many.
National Health Service doctors are angry that they lose valuable tax relief on pension contributions.
They are finding tax a bitter pill to swallow – so what’s going on and who is affected?
How pension tax relief works
Generally, when someone pays money into a pension, the government tops up the contribution with tax relief as an incentive for saving for retirement.
No tax is paid on the money when earned, so the fund can grow bigger, but tax is paid on withdrawal from a pension after taking the 25% tax-free payment into account.
But, the government caps pension tax relief in two ways –
- An annual allowance limiting tax relieved pension contributions to £40,000 a year, unless the saver has an adjusted income of £150,000 a year or more or a ‘threshold’ income of £110,000 or more, when the allowance tapers to as low as £10,000
- A lifetime allowance capping pension savings at £1.055 million
Savers can set aside more than the limits into their pensions, but lose any tax relief and are penalised with a 55% tax charge if their fund totals more than the lifetime allowance.
The tax issue for doctors
Doctors can opt not to pay pension contributions from their earnings for additional shifts, but the income still counts when working out the adjusted or threshold incomes.
This means doctors can see their pensions quickly approach the lifetime allowance, but although the money from extra shifts are not pensionable earnings, they do reduce the amount that can be paid into their pensions.
Not only doctors affected
Many other civil servants and public sector workers face the same pension tax issues as doctors, including department heads, head teachers and other high-ranking officials.
What’s the government doing?
There’s a lot of dithering going on due to Brexit taking a lot of time for ministers and the policy vacuum in government due to the Tory leadership election.
The Department of Health has hinted a plan to relax pension rules for doctors is on the way, but has not revealed any concrete proposals.