Doctors recognised for making outstanding contributions to patient care are among the most penalised in the pensions crisis. Jennifer Trueland hears why some clinical excellence awards may no longer be worth having
You work really hard, go over and above your job plan, and even find solutions to the problems besetting the NHS.
This is recognised at the highest level – you win a national CEA (clinical excellence award), which represents not only a pay rise but also a sense someone appreciates the sacrifices you have made. And then you get hit by a whopping pensions tax bill.
Today, senior doctors across the UK are coming to terms with the fact that their supposed ‘rewards’ have translated into tax liabilities, which in some cases could reach six figures.
If – as most doctors will have to do, given few have a spare £90,000 or so kicking around – you elect to ‘borrow’ from your pension pot via Scheme Pays, you will then have the added injury of paying interest on the loan. If you’ve been ‘lucky’ enough to win an award early in your career, you could be talking about paying interest of 4 or 5 per cent for a 25-year term – essentially a mortgage with no house to show for it.
What is even worse is that if you don’t actually hold on to the award until close to retirement – and you have to reapply every five years – you might not even get the pension benefit that should accrue from the higher salary; and no, you don’t get a tax rebate if that happens.
No wonder, then, that doctors who have already been stung are warning others to think carefully before applying for the awards. No wonder BMA pensions committee chair Vishal Sharma expects applications for the once sought-after awards to ‘fall off a cliff’ as fears spread.
Rick Body (pictured below) is one consultant who regrets his ‘successful’ application. As The Doctor reported last year, he won a CEA, in part for developing a decision-aid for diagnosing heart attacks that could save the NHS £100m a year. His pension tax bill (still unresolved at the time of writing) is likely to cost much more than the £36,000 salary boost carried by the bronze award and, with interest, will probably cost him around a quarter of a million to pay off through Scheme Pays.
‘No one is going to want to apply for a national CEA, and even with the provision that’s apparently been made this year [the UK governments have announced plans to mitigate the issue] people are still reluctant to take on extra work, which has wider implications for the NHS,’ says Professor Body, who is a consultant in emergency medicine at Central Manchester University Hospitals NHS Trust, and professor of emergency medicine at the University of Manchester.
‘You want people to take ownership of the problems that we have in the health service, and to be actively trying to solve them, not just going in and doing a shift and come home and not really think about solving the problems and how to improve services for patients. So we’ve got to be very careful of that.’
The work which led to his national CEA was certainly not covered in what you might call a normal working day, he concedes. ‘Most of that is totally outside of work – programming, spreadsheets, emails – producing a bespoke pathway for every trust in Greater Manchester. That’s not part of my job plan. That’s really why you get a CEA – it’s for going above and beyond the day job.
‘I don’t mind doing that – and I won’t stop, to be honest – but there is a limit to the cost that anyone is prepared to incur. My wife’s asking if we should cancel the holiday. We’ve got an unfinished house extension because we don’t know what we can afford. I know we’re lucky – most of the population are much less well off than us. But when this is the result of working so hard, you do think: why do it, at this cost to your family? I’d have been much better off if I hadn’t done that.’
This situation, and that of Plymouth consultant Kate Lovett (see below) makes Dr Sharma shake his head in despair.
‘Professor Body has got a big award for doing something really valuable for the NHS. And basically because of that he’s had a big pensions rise. But the worst thing about it is that he’ll get that big pension rise this year, and he’ll have to pay the tax on it, but these awards are temporary. You have to reapply for them every five years. And if he doesn’t hold the award until retirement, a lot of the pension growth that he’s paid tax on doesn’t actually give him a pension; it just disappears.
‘This is a good example of why this form of tax simply doesn’t work for the NHS pension scheme, and that’s what the BMA has been campaigning to try and fix for the last few years.’
Other people who have temporary pay increases are also hard hit, he says.
‘If someone takes on a management role, or a leadership role, they can get a temporary rise in pensionable pay, so again they get a big tax bill. For those positions, it’s very common that you take them for two or three years. So you get your pay rise initially, you get your big tax bill on that, and then you give that all up.
‘You pay the tax, but you don’t get the tax back that you paid when you got the pay rise. It’s very unusual to keep those roles until you retire because management roles in particular are very onerous, and as you get older, they are more and more difficult to do. But unless you keep that role until within three years of when you retire, all that pension growth that you paid tax on disappears; it just drops down again.’
The UK Government – whose responsibility this is – has indicated that it will introduce measures to address some of the pension tax problems in the next budget (expected, at the time of writing, to be in March). But that will provide little comfort to those who have already been hit.
‘What’s likely is that any reform that is announced will apply from April – from the next tax year,’ says Dr Sharma (pictured above).
‘We’re not expecting there to be any compensation for people who have already paid tax, unfortunately. That’s not been offered in any way, shape or form.’
Put off excelling
Dr Sharma believes the threat of punitive tax bills puts people off applying for national CEAs and roles with additional responsibility. Naturally, this could have an effect on doctors’ willingness to put in the extraordinary effort these awards are set up to recognise.
‘We’ve got good data from around the country that the local excellence awards used to be very competitive: people would apply for these awards, they were doing huge amounts of great things for the NHS, such as redesigning services, great teaching, research and so on. But the number of people applying has just dropped off a cliff.
‘In some places they’ve got more awards to give out than people that have applied, whereas in the past there were three or four applicants for every point. I don’t know the figures for the national awards – the report on last year’s round hasn’t been published yet – but again there used to be roughly a thousand applications each year for them [for 300 awards], but these numbers certainly will drop off,’ he says.
Although new local points awarded in England have been non-pensionable since April 2018, pre-existing ones are still pensionable. Scottish discretionary points and Welsh commitment awards remain pensionable.
If people lose the awards (or the increased pay for increased commitment) then it is possible in some cases to apply for pension pay protection, but this is complex, only applies to those in the 1995 scheme, and there are limits.
In any case, the pay protection safeguard would probably not be of use to a younger doctor who would expect basic salary to increase incrementally as they become more senior.
‘If they lost their awards, they may still see their pay rises above the level of protection in time,’ explains Dr Sharma.
The ACCEA (Advisory Council on Clinical Excellence Awards) has not yet published figures of numbers of people who applied for them last year. Last month it published its 2019 annual report, covering the 2018 round.
This showed that applications continued to fall slightly (this has been the trajectory since 2011), but this was before concerns about pension tax became widely known.
This year’s application round was supposed to open on 13 February but ACCEA announced at the eleventh hour that this was being put back a month.
Doctors will be taxed out of a job
One of the UK’s leading psychiatrists warns doctors are being pushed out of the workforce owing to punitive pension taxes.
Kate Lovett (pictured), dean at the Royal College of Psychiatrists, and a consultant community psychiatrist in Plymouth, told The Doctor she does not want to cut her commitment to the NHS but fears she will have no choice.
As with Dr Body, Dr Lovett faced a huge tax bill for 2018/19, largely because she received a bronze national CEA, partly in recognition of her work in promoting psychiatry as a career choice.
Ironically, her own tax situation means that if she does not retire aged 55, the risks of further financial loss could be high. This is because she would lose the pension benefits of the award if she did not still hold it close to retirement, but also because she would be paying interest on Scheme Pays over a longer period, costing more money.
‘You want to make sure that if you’ve got one of these [CEAs] that you’re retiring on it because otherwise you don’t get the benefits of it,’ she says. ‘In my situation, because I have mental health officer status, I’ll be able to draw my pension in two and a half years; I’m in a relatively fortunate position because I’ll likely still have the award, but also my Scheme Pays interest is over the short term. But people in their 40s who are getting awards and having to take out Scheme Pays for a 20-year period will have to pay back an awful lot of interest.’
Can't afford to work
This situation has ‘absolutely’ led her to consider taking pension at age 55, unless the situation changes, she confirms. ‘I don’t know what I would do after that – I might well continue to work in some capacity in the health service. However, I wouldn’t be able to work full-time if I’ve drawn my pension. My clinical commitment would have to be greatly reduced. But I simply can’t afford to go on year on year having big tax bills that I can’t afford to pay.’
When The Doctor wrote about Dr Lovett’s situation last year, her accountant and financial adviser had confirmed she faces a tax bill in excess of £150,000 for 2018/19. After highlighting her situation on Twitter, however, she was contacted by a specialist financial adviser who offered to look at the figures again.
‘He did a lot of real attention-to-detail forensic accounting on it, and found that my trust hadn’t paid out CEAs for a couple of years, so when I applied for them they were backdated over two years. So that money that was paid in one big chunk made it look as though I was paid an awful lot in one year, and that made me liable for a lot of pensions tax, [and] should actually have been paid in other tax years.’
This potentially means a huge reduction in her total bill – trimming a massive £83,000 off the sum owed, although she will, of course, now have an additional tax liability for the other years when the money ought to have been paid. Although she is still faced with a bill running into tens of thousands of pounds, it is not as bad as she had originally been told. ‘It’s not altogether brilliant, but it’s less than it was,’ she says.
‘It’s made my overall tax bill less, but it’s also made it more complicated as there’s a question over whether I can retrospectively apply for Scheme Pays because you normally have to elect to pay it within the year. We’re quite hopeful that it will be OK because it wasn’t my fault, but there’s a risk that it won’t be which, in the short term, puts me in a worrying position.
‘So there’s some good news, but had I not been vocal about it on Twitter and had somebody offering to give me a second opinion, I wouldn’t have discovered that my bill was several tens of thousands of pounds lower and I would have just paid.
‘My advice to others is to get a second opinion; I had a financial adviser, I had an accountant, but they had taken it at face value. It took someone else going through it forensically to see that it wasn’t right.’
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