Osborne’s legacy for general practice
Authors: Michael Ingram
Publication date: 29 Jan 2013
As the government imposes restrictions to tax-free pensions, Michael Ingram considers the options available to GPs
It may just be the law of unintended consequences, but it could turn out that George Osborne, rather than Jeremy Hunt or Andrew Lansley, has the most influence in changing the general practice workforce in the 2010s.
If so, it will boil down to one of the biggest bête noirs of the relationship between government and doctors. This particular beast is the only issue to have raised sufficient ire to lead the profession to call for, but then go flaccidly impotent on, industrial action: the continuing raid on doctors’ pensions.
Ironically, the action that affects the future workforce most may well be taking place off the battlefield. The machine gunners of the popular press seem to have mown down any attempted assault on the entrenched position of the government. Instead, the area that is likely to have the greatest effect is the other “certainty of life”—the simple matter of taxes.
It goes like this. The older generation of general practitioners (GPs), of which I have inadvertently become a member, tend to have spent their working life in full time partnership. They are often male and have their roots planted in the practice in which they have been plodding along. They have, in general, been doing rather well and benefiting from the pension arrangements that were enhanced by the 2004 general medical services contract.
Then along comes the fly in the ointment. Suddenly, the government starts reducing tax relief on pensions so that it is not just retired bankers, top civil servants, and captains of industry who are taxed on generous pension packages but many GPs as well. In April 2012 a new aggressive tax regime started. Complex as it is, this boils down to the fact that you pay loads of tax if your pension benefit value increases by more than £50 000 a year or your pot exceeds £1.5m. I can hear the crocodile tears. But, with index linking, dynamisation, and other such mystic formulas, that figure is easily reached. A lot of GPs will have shed real tears as they wrote unanticipated thumping great cheques to HM Revenue and Customs before the January deadline to cover such pension increases.
Just to add to the fun, Mr Osborne announced in the autumn statement that from April 2014 the tax-free limits are to be reduced further to £40 000 and a pot of £1.25m. More sweat glistens on the brows of the oldies.
This comes as ministers have orchestrated the imposed general medical services contract for 2013-14, which will mean GPs having to do more work just to earn the same money.
Feed that into the simple laws of supply and demand in the workforce, and suddenly GP partners in their mid to late 50s have put two and two together. They have realised that the next few years represent a massive increase in workload, just to maintain their profit share. That is not so that they can enjoy the fruits of their earnings, but so they can have the privilege of paying large amounts of tax on their pensionable earnings. There are limits to the relentless pursuit of income and those limits are quickly being reached.
So expect an exodus of the grey and wrinkly as they realise that the time has come to take one of two options. They can take early retirement on a lower but unpillaged pension. Alternatively, they can avoid the excessive taxation but cut down their hours to ensure that their earnings fall below the necessary limits, while their leisure and quality of life increase.
An additional lure is that, unlike employed doctors, partners pay the employers superannuation too, so those working at present are paying over 22.5% of their earnings into the pension scheme. Early retirement means an instant hoist in income as superannuation payments cease and that 22.5% goes into your pocket.
The attraction of retirement may mean the loss of experienced, risk accepting GPs. But it should see many more partnerships become available, especially as falling partnership profits will narrow the difference in cost to practices of contracting a partner rather than a salaried doctor. However, whether the appeal of partnerships, with their greater commitment and involvement, is still enough to attract those seeking a career in general practice is another matter.
With the pessimistic outlook on earnings and the rising superannuation contributions for substantially lower benefit in the new NHS pensions plans, paying tax on generous pension benefits may not be a problem in the future.
Competing interests: None declared.
Michael Ingram GP partner
The Red House Surgery, Radlett, Hertfordshire, UK
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