The government is to pay the tax bills of NHS workers caught out by changes to pension contribution limits who have been turning down additional work for fear of running up large tax bills.
It is hoped the move will see GPs and consultants return to taking extra shifts this winter.
Royal London said the government plans indicated the tax bills incurred by doctors this year will be covered by the NHS pension scheme under the ‘scheme pays' process. This would normally result in a reduced pension at retirement but the government will make good any reduced pension.
However, because the NHS pension scheme is unfunded - in other words, there is no money in the scheme - the NHS pension scheme will need to ask the NHS to provide the money to pay the tax bills to the Treasury. What is not yet clear is whether the NHS will get extra money to do this or whether it will have to reduce clinical budgets to find the cash, the provider warned.
It said the underlying problem is caused by the ‘tapered annual allowance' - a complex feature of the pension tax relief system which the Treasury was reviewing when the general election was called. But the Treasury has so far insisted that the tax relief system did not need to change, according to Royal London.
Director of policy Steve Webb said: "The plan for the NHS to pay the tax bills of doctors' amounts to a bizarre money-go-round with one part of the public sector paying money to another in order to resolve a short-term crisis.
"The fundamental problem here is the complex system of pension tax relief. The failure of the government to address this issue has resulted in emergency measures having to be taken in the middle of an election campaign simply to avoid a winter crisis in the NHS.
"The Treasury could have avoided all of these problems if it had simply admitted months ago that the pension tax relief system is too complex and had abolished the tapered annual allowance altogether."
Quilter head of retirement policy Jon Greer added: "It would be a radical move by the government to pay the pension tax bills of NHS workers. It is an effective admission that the pension annual allowance taper is a broken policy that is too unpredictable and punitive, however, it has taken the country to be on the cusp of a winter crisis in the NHS during an election for the government to address it.
"This would be a controversial policy given it offers NHS staff special treatment and ignores large swathes of high earning public sector workers who provide critical services every day such as judges, teachers and transport workers.
"This quick fix to avert a crisis is the only option open to the government right now. Over the longer term the government should go much further - the noble thing to do would be to accept the taper is not fit for purpose and reverse it."
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