Gold-plated NHS pensions ditched by 245,500 as tax bill rises
NHS workers are abandoning their generous gold-plated pensions in droves, with a quarter of a million opting out since 2015, according to new data laying bare the extent of problems first revealed by Telegraph Money.
Experts are blaming the exodus of 245,500 NHS staff from their defined benefit pension scheme in the past three years, including 100,000 during 2016 alone, on the creep of tightening tax rules.
Jon Greer, head of retirement policy at wealth manager Quilter, said: “The impact of the lifetime allowance is beginning to rear its head, a trend likely to continue as the Treasury has made it clear that taxation on pensions is no longer for the substantially wealthy.”
Two policies have hit those with generous pensions hardest: cuts to the annual and lifetime allowances, which increasingly turn healthy retirement funds into a tax burden. In April 2016 the Government reduced to £40,000 the annual allowance individuals can put into their pension and still get tax relief. Gradually it has also decreased the lifetime allowance, the maximum you can save into a pension, to £1.03m from a peak of £1.8m in 2010. Savings exceeding that will be hit with a tax charge of up to 55pc on the overflow. You are likely to be affected by the lifetime allowance in 2018/19 if you are on track for a final salary pension, with no separate lump sum, of more than £51,500 a year.
Telegraph Money revealed last month that public servants across Britain are revolting against these pension changes – which they say punch holes in front-line health, justice and emergency services – in a bid to get the Chancellor to improve rather than cut tax relief.
Philip Hammond, the Chancellor, is gearing up to deliver his Budget on Oct 29. Ringing in his ears is a call from the Treasury select committee to cut the amount that savers can put into their pensions each year, thereby saving the Government some of the £24.1bn it is forecast to forgo in tax relief this year.
But Dr John Miller, a consultant who has worked for the NHS in Britain, the military and abroad, told this newspaper that his peers in their mid-40s and older are already giving up doing extra clinics, patient sessions and overtime, due to changes to pension tax relief limits.
Others simply take their pension and leave the profession, he said. This is borne out by the data showing the number of NHS staff leaving the pension scheme, published after an investigation by trade magazine the Health Service Journal. It found the group with the highest increase in opt-outs were 46 to 55 year-olds, with a 94pc increase in 2016.
Mr Greer said: “Under the pressure of immediate living costs, saving for a retirement appears to be unaffordable, and in certain schemes like the NHS, which provides generous benefits, there is evidence that the lack of flexibility is even leading to some lower-paid individuals leaving.”