If you asked most doctors which of the ancient Greeks they're most familiar with, the answer is likely to be the 'father of medicine' Hippocrates, after whom the oath that they traditionally took before beginning their practice was named.
But at the moment, it’s the words of one of his near-contemporaries, philosopher Heraclitus, that should be ringing in their ears when they’re reviewing their retirement plans. Heraclitus is credited with inventing the phrase ‘change is the only constant in life,’ a statement which could characterise the ever-evolving situation with GP pension contributions in recent years.
Over the last decade, the lifetime pension allowance has been reduced by the government from £1.8m to a little over £1m today, while successive Finance Acts have reduced the annual contributions allowance from £255,000 in 2010/11 to £50,000 in 2011/12 and then down to £40,000 in 2014/15.
Since 2016/17, the annual allowance has also been tapered, currently reducing when an individual’s threshold (taxed) income is above £200,000 and their adjusted (total including pension growth) income is above £240,000.
For many senior GPs and consultants, all these changes have had a major impact on their retirement and pension planning.
And now, the current soaring levels of inflation and higher levels of income that have been associated with the provision of Covid-related services are going to have a further significant impact in this area.
Because of the way in which charges for the GP defined benefits pension scheme is calculated, many members of the scheme could be facing pension tax penalties in 2022/23 estimated to be worth anything up to ‘half their post-tax income’ for pension growth from which they’ll never benefit from. Pleas to the government from the BMA and from the Association of Independent Specialist Medical Accountants (AISMA) to act to mitigate these unique circumstances have fallen on deaf ears.
There is now real concern within the medical profession that these added costs could lead many GPs who are approaching retirement to either stop taking on extra/as much work or to stop practising altogether at a time when waiting lists have never been longer.
In terms of a solution to this issue, there isn’t a single silver bullet and we would strongly recommend that doctors look at their individual situations before taking an informed decision on the best option for them. Some may choose to stay in the NHS pension scheme and ride out the wave of higher tax bills that will follow this year and next, while others will choose to come out of it, either temporarily or permanently depending on their situations.
It’s important to bear in mind, however, that those taking either of the latter routes will lose out on the benefits associated with the scheme as a result, which could potentially be more expensive than the additional charges you’re facing.
The current situation also provides an imperative to look at any other personal provisions you’ve made for your retirement, to identify whether increasing your contributions into them might be a sensible move to make at this point.
However you think your individual pension situation looks, the essential thing is to act quickly to get an accurate picture of what you can expect. Take qualified advice on what the best approach might be for your personal circumstances and then act on it to minimise the impact of what’s ahead.
In this situation, sitting tight and hoping for the best is not a sustainable strategy.
