The Full English Accompaniment – Doctors are rubbish at pensions

What’s piqued my interest this week?

There’s been lots in the news over the past few weeks about how high-earning professionals are being stung by the Tapered Annual Allowance, particularly doctors (1, 2, 3). The estimates are that around a million UK workers will have an unexpected tax bill (4, 5). I wrote a long-winded draft post trying to explain the reasons why doctors were disproportionately affected, but then YFG did a much better one, so I’ll direct you there for an explanation (6). Instead I’ll try and provide some context from a doctoring point of view.

Doctors make a good wage. As someone climbing the ladder, it takes a long time to get there (10 years and counting), but the end result is solid. You don’t go into medicine to make money. GP and consultant starting salaries are £~70k, with most on about £80-90k. If I had wanted to get filthy stinking rich I would have gone into banking, law or finance. The grades to get into medicine are the same as those for degrees which feed into the big financial firms. You go into medicine to see people, ‘make a difference’ (bleurgh), do science-y things. You know you’ll be remunerated well enough for your services. You’re happy to pay taxes as you live in a developed society, and the whole point of a society is to support it’s members.

Many doctors in my experience are crap at personal finance, but they know that the NHS pension will sort them out at the end. And the NHS pension has long been a trade-off for a national monopolised employer running pay rates lower than international averages. That £70k starting wage? In the private sector of the UK, double it. That’s not private practice, that’s private companies sub-contracted by the NHS to provide NHS services. In the antipodes, double it. In the US and Canada, triple it and then some. Break out the tiny violins.

Why is the Tapered Annual Allowance such a stinger? Well drawing in some of YFG’s subheadings, doctors have high, variable, unpredictable incomes, with a defined benefit scheme that is inflexible. They are unable to predict if they will fall foul of the TAA, are unlikely to know from the PAYE payslips, and unable to opt out if they do.

The NHS pension is a DB Career-Average Revalued Earnings (CARE) system with a 1/54th ratio. It has been consistently raided and watered down over the past few years, and with the 2015 changes any option to transfer out removed. It’s an unfunded scheme so there’s no money to transfer out. It has high contributions of 20.6%, split at different levels between individual and employer based on pensionable pay (7). The 2015 changes are already subject to legal action for age discrimination (8, 9). Payroll services do not offer options for pensions, so either you have your NHS pension scheme, or you have no pension at all. Even if you knew you were going to breach the TAA and wanted to reduce your contributions and keep working, you couldn’t. Increasingly people are choosing to opt out altogether (10). A cynical person would say this was the intention all along, to precipitate the pension scheme collapsing.

To break down the income side for context, year-on-year it is unlikely a doctor can predict their income. Mine changes monthly. My salary changes every six months due to the complex contracting system. The NHS is chronically short of doctors and routinely asks staff to step in to fill the breaches at minimal notice. They are paid, but this overtime to keep services going is unpredictable. I’ve one colleague who has a £20k tax bill for overtime he was forced to do to make sure there was a doctor on the ward. Due to the Tapered Annual Allowance doctors are refusing to fill the gaps, as the extra work can kick them into the Tapered Annual Allowance tax bracket.

This all comes on the back of continuing pressures and erosion of morale. A dossier of experiences collated this week gives an idea of what it’s like to work under NHS management (11). Can’t come into work as you have pneumonia and just found out you have lung cancer? Obviously not a team player. Got appendicitis? Finish your shift before taking yourself to A&E. It goes on. So forgive me the rant, but the NHS is in a pretty dire situation already, without complex taxation laws penalising staff for working.

Have a great week,

The Shrink

Other News

Opinion/ blogs:

The kitchen garden:

What I’m reading (affiliate links):

The Right Way to Keep Chickens – Virginia Shirt – Another guide to our new pets.

Food Of The Gods: The Search for the Original Tree of Knowledge: A Radical History of Plants, Drugs and Human Evolution – Terence McKenna – An ethnobotanist explores humanitys’ fascination with hallucinogenics, and the role of altered states of consciousness on the development of human society.

References:

  1. https://www.ftadviser.com/pensions/2019/03/26/union-urges-action-on-doctors-pensions/
  2. https://www.ft.com/content/225fb300-4c8e-11e9-bbc9-6917dce3dc62
  3. https://www.telegraph.co.uk/pensions-retirement/tax-retirement/doctors-give-nhs-bosses-days-fix-pension-crisis/
  4. https://www.internationalinvestment.net/news/4001515/million-uk-workers-unexpected-pensions-tax
  5. https://www.telegraph.co.uk/pensions-retirement/tax-retirement/million-professionals-face-100k-pension-tax-bills-completely/
  6. https://youngfiguy.com/nhs-pension-scheme-and-doctors/
  7. https://www.nhsemployers.org/your-workforce/pay-and-reward/pensions/pension-contribution-tax-relief
  8. https://www.gponline.com/bma-sue-government-nhs-pension-scheme-age-discrimination/article/1578690
  9. https://www.bmj.com/content/364/bmj.l1145
  10. https://www.investorschronicle.co.uk/portfolio-clinic/2019/02/28/think-long-and-hard-before-opting-out-of-your-nhs-pension/
  11. https://www.theguardian.com/society/2019/mar/28/nhs-trainee-doctors-denied-leave-dossier-hospitals
  12. https://www.bbc.co.uk/news/business-47691078
  13. https://www.bbc.co.uk/news/business-47679192
  14. https://www.theguardian.com/money/2019/mar/29/house-prices-in-england-fall-for-first-time-since-2012
  15. https://www.bbc.co.uk/news/business-47741984
  16. https://www.telegraph.co.uk/business/2019/03/30/china-planting-flag-europe-bad-news-italy-france/
  17. https://www.theguardian.com/uk-news/2019/mar/30/peasant-revolt-earl-percy-flats-allotments-london
  18. https://monevator.com/fintech-and-money-habits/
  19. http://thefirestarter.co.uk/to-lift-yourself-higher-walk-your-own-fire/
  20. https://theescapeartist.me/2019/03/27/get-rich-fast-part-2/
  21. http://www.frugalwoods.com/2019/03/27/an-electric-blanket-and-other-february-2019-expenditures/
  22. https://drfire.co.uk/phd/
  23. https://firevlondon.com/2019/03/31/march-19-q1-review/
  24. https://youngfiguy.com/state-pension-age-increases/
  25. https://ditchthecave.com/m-shaped-life/
  26. https://gentlemansfamilyfinances.wordpress.com/2019/03/29/stories-from-london-conspicuous-consumption/
  27. https://www.foxymonkey.com/each-way-matched-betting/
  28. https://thesavingninja.com/the-account-sharing-revolution/
  29. https://www.ukvalueinvestor.com/2019/03/what-went-wrong-at-interserve.html/
  30. https://cashflowcop.com/the-ultimate-directory-of-fire-calculators/
  31. https://indeedably.com/choose-your-poison/
  32. https://simplelivingsomerset.wordpress.com/2019/03/29/o-tempora-o-mores/
  33. https://www.jackwallington.com/roundup-of-glyphosate-weed-killer-research/
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