MEDICS have welcomed the Chancellor's decision to abolish the lifetime allowance on tax-free pension pots. 

Jeremy Hunt said "no one should be pushed out of the workforce for tax reasons" as he unveiled measures aimed at stemming an exodus of high earners from the labour market. 

Mr Hunt used the Budget to announce an end to the Lifetime Allowance on pensions savings, meaning that workers will no longer face tax bills once they exceed a threshold of £1.07 million set aside in a pension scheme for retirement. 

The maximum amount workers can pay into a pension per year without tax - known as the annual allowance - has also increased from £40,000 to £60,000 per year. 

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The decision follows warnings that the NHS recovery was being jeopardised by pension tax bills that penalised senior consultants for taking on extra hours - for example to help clear waiting list backlogs.

In some cases senior clinicians were avoiding tax bills by taking early retirement, reducing their hours, or opting use their free time to work in private hospitals instead where their earnings do not contribute to their NHS pension pot.

The issue has also been blamed for a shrinking number of GPs willing to take on shifts at NHS out-of-hours (OOH) services. 

The Herald is aware of recent cases where two GP partners based at the same Scottish practice received pension tax bills equivalent to 90% and 106% of their incomes - effectively wiping out their earnings for the past year, despite having cut out OOH work.  

In July 2022, a damning report by Westminster's Health and Social Care Committee - at the time chaired by Mr Hunt, prior to his appointment as Chancellor - said it had "clear evidence of senior medical staff both reducing their NHS hours and retiring earlier than they would otherwise because of concerns about pensions". 

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Trade union, the BMA, said the pensions tax change "should effectively close the floodgates to keep more senior doctors in the NHS workforce".

Dr Vishal Sharma, chair of the BMA Pensions Committee and chair of the Consultants Committee, said: “The scrapping of the lifetime allowance will be potentially transformative for the NHS as senior doctors will no longer be forced to retire early and can continue to work within the NHS, providing vital patient care.

"We are pleased that the Chancellor has acted decisively to avert a major workforce crisis, as a failure to do so would have resulted in a major risk to the NHS, to our patients and to the junior doctors we mentor and train.

“The rise in the annual allowance will mean far fewer doctors will receive large punitive pension tax bills and will significantly reduce the perverse incentive to reduce hours due to pension tax."

However, the BMA noted that a minority of doctors will still be adversely impacted by a separate pension tax issue, known as the tapered annual allowance, which "hasn’t been meaningfully modified in these reforms".

It said these medics "will still need to think carefully before taking on additional shifts or doing overtime".

The pension tax taper kicks in where someone has an ‘adjusted income’ (including their own and employer pension contributions) above £260,000.

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Professor Andrew Elder, president of the Royal College of Physicians of Edinburgh, said: "Whilst the College welcomes the budget announcement with regard to pension annual and lifetime allowances, and hopes this will stem the rate of early retirement of consultants from the NHS workforce, the reasons behind such early retirement go well beyond finance.

"Our most experienced doctors need to have the time to undertake not only their work with patients, but also to teach and train those who will follow them.

"Lack of time for these two core elements of professional life leads to burnout and moral injury.”