Pensions Bulletin 2019/45

Our viewpoint

Interim solution for doctors’ pensions tax concerns may constitute tax avoidance

So says Matt Hancock, Secretary of State for Health and Social Care, in giving the requested direction to implement a “Scheme Pays neutralisation” patch solution to senior medical staff in NHS England incurring annual allowance charges for the 2019/20 tax year.

In his letter to Simon Stevens, NHS England’s Chief Executive, Mr Hancock asks for the implementation of the scheme to minimise the risk of it subsequently being held to be tax avoidance.

The actual proposal and more on the operational details can be found on the NHS England website.  What has become clearer since the initial press articles on which we based our report last week (see Pensions Bulletin 2019/44) is that the process will be as follows: as anticipated, the relevant limited group offered this deal will – all in line with current legislation – run up annual allowance charges, use Scheme Pays to have the tax paid for them by the NHS Scheme, and have a reduction applied to their NHS Scheme benefit; but the promise being given is that at retirement, it will be their NHS employer that makes a top-up pension payment directly (albeit funded nationally) to counteract the reduction.  There will be no top-up through the NHS pension scheme.

The FAQs for employees and employers on the website give more detail including how the obligation will continue if employers restructure, the provisions employers should make in their accounts etc.  In terms of how to set the pensions up, the FAQ notes that “Payments will typically not need to be made before 2021/22, and the mechanism will be set out before then, in conjunction with employers and trade unions”.

The arrangement will also apply to GPs and dentists, but as many work via contracts to supply services to the NHS rather than as employees, it is not yet clear how the intended benefits of this interim solution will be delivered for them.

Separately, in their manifesto, the Conservatives are promising that should they be returned to Government, they “will address the ‘taper problem’ in doctors’ pensions, which causes many to turn down extra shifts for fear of high tax bills.  Within our first 30 days, we will hold an urgent review, working with the British Medical Association and Academy of Medical Royal Colleges to solve the problem”.


This interim solution gets around the possibility of a within scheme top-up setting off another annual allowance charge or unauthorised payment charges and perhaps also means that the Government is not backed into a corner when it comes to any reform of the annual allowance.

However, the top-up now has to be delivered through a vehicle akin to an unfunded employer-financed retirement benefit scheme.  And the problem with setting up a new structure to deliver a pension that has been taken away in a registered pension scheme to pay tax is that it smacks of tax avoidance, normally not allowed to public sector organisations.

The patch means the Government can give the strong reassurances the medics want so as to work full hours, but the burden of delivery for all affected employers looks horrible.

Pension promises from the major parties

We take our customary look, without comment, at what the politicians are promising on the pensions front when asking people to vote for them in the General Election, focussing on the two biggest parties’ commitments.

The Conservative Party says that it will:

  • Solve the problems caused by the annual allowance taper in doctors’ pensions – see the article above for details
  • Not raise the rates of income tax, national insurance contributions (NICs) or VAT
  • Raise the NIC threshold to £9,500 next year with an ambition to raise it to £12,500
  • Keep the triple lock for State pension increases as well as other pensioner benefits
  • Address the “net pay anomaly” (see Pensions Bulletin 2019/39); and
  • Reintroduce the Pension Schemes Bill (see Pensions Bulletin 2019/41)

The Labour Party says that it will:

  • Work with the generation of women born in the 1950s to design a system of recompense for having “had their pension age changed without fair notification” (see below for more on this)
  • Leave the State Pension Age at 66 and review retirement ages for physically arduous and stressful occupations, including shift workers, in the public and private sectors
  • Maintain the State pension triple lock and other pensioner benefits
  • Establish an independent Pensions Commission, modelled on the Low Pay Commission, to recommend target levels for workplace pensions
  • Create a single and publicly run pensions dashboard
  • Legislate for “collective pension schemes”; and
  • Ensure that the pensions of UK citizens living overseas rise in line with pensions in Britain

After the publication of its manifesto the Labour Party issued a press release setting out some details of how its plan to address the State pension losses of women born in the 1950s would work.  It would involve each ‘lost week’ of pension attracting some redress depending on date of birth: women born between 6 April 1950 and 5 April 1955 would be paid £100 per lost week, whilst those born between 6 April 1955 and 5 April 1960 would see this £100 tapered down to nil.  On this basis the Labour Party says that individual redress payments would vary between £31,300 and nil, with an average payment of £15,380 and the total cost would be £58bn.

Other proposals in Labour’s manifesto that would impact pension schemes include:

  • De-listing companies that fail to contribute to tackling the climate and environmental emergency
  • Bringing energy, water, rail companies, Royal Mail and the broadband-relevant parts of BT into public ownership; and
  • Expropriating 10% of large company shares into Inclusive Ownership Funds

Browsing the smaller parties’ manifestos the Liberal Democrat Party also support retaining the triple lock, the Green Party proposes a “universal basic income” scheme, whilst the Brexit Party does not mention pensions at all.

Queen’s Speech scheduled for 19 December

The Prime Minister’s Office has announced that, should Boris Johnson be returned as Prime Minister at the General Election, the State Opening of Parliament and the Queen’s Speech will take place on 19 December.


So, in the event of a Conservative victory, this should mean that before Christmas we will know that the Pension Schemes Bill is on its way back – presumably in exactly the same form as it was when it was lost at the dissolution.  This in turn should give the Pensions Regulator the direction it needs to issue its first consultation on the new DB funding regime in ‘early 2020’.

This Pensions Bulletin does not constitute advice, nor should it be taken as an authoritative statement of the law.  For further help, please contact David Everett at our London office or the partner who normally advises you.

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