Workforce planning and sustainable staffing - changes to the NHS Pensions Scheme

Following the Department of Health and Social Care consultation, proposed changes to the NHS Pension Scheme have been agreed as part of the government’s Spring Budget.

Key points:

  • The annual allowance (AA) is to increase from £40,000 to £60,000, from 6 April 2023 with individuals still able to carry forward unused AA from the three previous tax years. This means that those regularly going beyond £60,000 of pensions savings/growth will save around £8-9,000 p.a. 
  • The adjusted income threshold for the tapered AA will also be increased from £240,000 to £260,000 from 6 April 2023.
  • Lifetime allowance (LTA) charge will be removed from 6 April 2023 and abolished entirely from April 2024.

The BMA and NHS workforce have largely reacted positively to this news. From a financial perspective, the agreed changes will make working in the NHS for longer more attractive to senior paediatricians; discouraging reduction of hours and/or early retirement.  

RCPCH Officer for Workforce Planning, Dr Kay Tyerman said:

I welcome the pension tax changes announced in the March budget. In particular the increase in annual allowance for pension contributions will allow paediatricians to remain in the work place and retire when it is right for them rather than being forced to retire due to financial penalties. It is important however that there is cross-party agreement in Westminster to ensure that the announced changes are not back-tracked and that annual allowance is reviewed on a yearly basis to take into account inflation and its impact on pension growth.

Prior to the budget announcement, other changes were also announced. Partial retirement flexibilities to the 1995 Section of the scheme will remove barriers to staff retiring and returning to work facilitating partial retirement. Furthermore, a resolution to the Consumer Price Index (CPI) mismatch will reduce the risk that some NHS staff, including senior clinicians, could face an annual allowance tax charge due to the high rate of CPI for September 2022.

RCPCH President, Dr Camilla Kingdon said:  

These pension reforms are very welcome and will hopefully give some peace of mind to paediatricians who have found themselves facing punitive financial penalties. However, the pensions issue has only ever been part of the reason why some paediatricians retire early or try to reduce their hours. We need to see the long awaited Workforce Plan and we need the Plan to articulate a level of detail that gives us confidence that there is a medium to long term plan to address the critical shortage of healthcare workers in this country. Without the knowledge that there is light at the end of the tunnel, morale is never going to improve.

This workforce comment is specific to the NHS Pension Scheme changes - please see our RCPCH response by Camilla on the Spring Budget for our media response to the budget.