Lord Davies of Brixton
To ask His Majesty’s Government what assessment they have made of the impact of the annual allowance, used for the purposes of tax relief on occupational pensions, on (1) the employment, and (2) the retention, of members of public service pension schemes.
Viscount Younger of Leckie (Con)
My Lords, the Government greatly value the work of all public sector staff, be they NHS workers, teachers or police officers. Public sector pension schemes are mainly defined benefit schemes and are among the most generous available. The annual allowance affects only the highest-earning pension savers, and the Government estimate that 99% of pension savers make annual contributions below £40,000—the level of the standard annual allowance.
Lord Davies of Brixton (Lab)
My Lords, I thank the Minister for his reply, but it is worth reminding ourselves that the last Prime Minister promised to stem the exodus of doctors from the NHS. The Prime Minister before that promised to fix the pension tax relief rules, and the new Chancellor, no less, has called the situation a “national scandal”. Of course, the annual allowance is a general problem that can affect people across all defined benefit pension schemes, not least senior nurses—this goes back to the previous Question. But does the Minister understand that, given the 10% increase in the CPI this September and given the rules of the NHS scheme, some GPs will be faced with additional tax bills into six figures this coming year? Does he understand the extent of the scandal and that tinkering with the rules will not be enough? Radical action is required.
Viscount Younger of Leckie (Con)
I recognise some of what the noble Lord has mentioned. In recognition of the impact that pension tax has on senior clinicians in the NHS, and to improve staff retention, which was part of the subject of the last Question, the Government announced changes to the NHS pension scheme on 22 September. These include changing the pension rules regarding inflation, encouraging NHS trusts to offer so-called pension recycling—the noble Lord will know more about this than me—and implementing permanent retirement flexibilities to allow experienced staff to return to service or stay in service longer.
Baroness Kramer (LD)
My Lords, could the Minister go back and look at this, and take it very seriously? We are in a situation where, with £1 of additional income, an individual at a senior level can face something like £30,000 in additional tax liability—and that is just in year 1. This applies to medics who have worked on the battlefield in places like Afghanistan and in our emergency rooms. They have begged to be allowed to work unpaid so that they do not trigger the impact of the pension allowance cliff edge. This is a problem of bad legislation and a lack of flexibility within the schemes, both of which could be rectified with some decent attention.
Viscount Younger of Leckie (Con)
I note what the noble Baroness has said, but, on her point about flexibility, one of the actions that we have taken is extending partial retirement; for example, by allowing more NHS staff to take part of their pension while continuing to work and build further pension rights. We have also extended flexibilities enacted in response to the pandemic by suspending the 16-hour rule, which requires some pension scheme members to work no more than 16 hours per week if they return to NHS employment. So I reassure the noble Baroness that we have taken action, and I am sure that there is more that we can do.
Baroness Altmann (Con)
My Lords, I urge my noble friend to go back to the department and look again at the tinkering that has happened to the NHS pension scheme—this will not sort out the problem. The fundamental issue is the way that the annual and lifetime allowances deter extra work and drive early retirement. Although the Government have made commendable efforts to make some adjustments, those underlying problems persist. My noble friend said that this affects only the highest earners, but of course, within the NHS, these are often the most valuable members of staff, whom we need to keep.
Viscount Younger of Leckie (Con)
Indeed. The subject of the question was to do with higher earners, but I will broaden my response a little. Public service pensions are a key part of the overall renumeration in the public sector and I acknowledge that it is important to get this right for retention. Reference has been made to nurses. A typical NHS nurse will retire after 30 years with a pension worth over £24,000 per year in today’s money. This compares quite favourably to a private sector employee with similar earnings receiving less than £10,000. As I have said, there is more to do, and we will keep this under review.
Lord Tunnicliffe (Lab)
My Lords, it is no good the Minister trying to persuade us that this is an attractive package. We know that senior doctors are retiring early, and we should be pragmatic about this. These people represent a very expensive investment—they are assets, and we should sweat our assets. They should not be leaving at the age of 58, 59 or 60, when realistically they should continue into their mid-60s or later, yielding their skills to our society.
Viscount Younger of Leckie (Con)
Indeed, it is very important that we look after those at the senior end of the NHS; much has been made of that in the previous Question and this one. As the noble Lord has alluded to, tax relief offered on pension contributions is expensive, costing the Exchequer £67.3 billion in 2020-21, with around 58% relieved at the higher and additional rates. As I mentioned earlier, there are a number of other aspects on which we have taken action, and perhaps there is more to do to be sure that we can retain our very best doctors and senior clinicians.
Lord Sikka (Lab)
My Lords, as the Minister just said, the pension tax relief is about £67.3 billion, the majority of which goes to higher and additional rate taxpayers. Could he explain the steps that the Government have taken to eliminate the regressive effects of the tax breaks for the richest?
Viscount Younger of Leckie (Con)
This is a familiar angle from the noble Lord, and I have already mentioned a number of the steps we have taken. He will know that individuals can be subject to different tax treatments depending on the type of income they are receiving and whether they are employed, self-employed or working through a company structure. I reassure him that it is very important that we find the best way to reward those at the very top, particularly our senior clinicians, otherwise they might move abroad. We must also look at those at the other end of the scale, particularly at this very difficult time.
Baroness Lister of Burtersett (Lab)
My Lords, following on from the Minister’s response to my noble friend, the Prime Minister and the Chancellor assured us the other day that those with the broadest shoulders would be asked to bear the greatest burden. Therefore, will the Government look again at the question of higher rate tax relief and the amount of money that has been lost in that, and at whether significant savings might be made through that—leaving aside the problem identified earlier?
Viscount Younger of Leckie (Con)
I can certainly take back that message. As the House is aware, we have the Autumn Statement coming up on 17 November. Although I am the first not to second-guess what might be in that, I am certain that the Chancellor and the Prime Minister will be looking at all aspects, and particularly in this respect.
Baroness Donaghy (Lab)
The Minister says that his department is doing its best, but it has been estimated that 10% of the workforce in these areas would stay on if something were to be done about the annual allowance. Some people cannot wait to leave; they are not willing to work for nothing. I do not know of an HR manager in the UK who would not give their eye teeth for 10% retention. Can the Minister please put pressure on his department to do something about that?
Viscount Younger of Leckie (Con)
Again, I will take the message back to the department. I reassure the noble Baroness that we are taking action to support NHS staff, including those at the top end. The Department of Health and Social Care has commissioned NHS England to develop a long-term workforce plan. This will look at all aspects, including pay at the senior end, as well as the other aspects that have cropped up this afternoon in terms of how we can reward and keep our very best senior people.
Lord Rooker (Lab)
Is it still the case, as it was when I was at the DSS from 1999 to 2001, that when Ministers were given any information whatever about pensions— any options, anything at all—they were always given a 30-year timeframe? That meant that there were no surprises of the detailed decisions that might be taken. Along with this Question and the one that is going to follow, there is probably a good case for looking at how our pensions are funded, both private and public, in this country.
Viscount Younger of Leckie (Con)
I do not think that there was a question there—but, again, it is a matter that I shall reflect on and certainly pass back to the department.