The Government has rejected proposed flexibilities for the NHS Pension Scheme and addressed age discrimination issues within the scheme.

Responding to feedback on the Department of Health and Social Care consultation on introducing flexibility to the scheme, the government rejected the proposed changes to the taper threshold and said it would instead launch a tool to help NHS staff understand the tax implications of their pension.

The measures were proposed in September.

The rejected proposals would have allowed members of the defined benefit scheme to select a personalised pension growth level at the beginning of each tax year. Members would then have had the choice to top up their pensions when they were clearer on what their total earnings would be.

Wealth management and Financial Planning firm Quilter said that government does not appear to appreciate the “financial confusion” they have created and that it is shameful that doctors are charged “absurd” tax on their pensions.

Graham Crossley, NHS pension expert at Quilter, said that the consultation, “confirmed the Government’s view that tinkering with the annual allowance taper will resolve all the annual allowance issues in the NHS. These issues should not be underestimated as they mean that some doctors are refusing overtime or retiring early to avoid hefty tax bills.

“Changing the annual allowance will not solve the issue. In fact a number of affected doctors may feel compelled to continue to risk their family finances. We’ve heard instances of some regular opting out and in of the scheme to manage their pension growth, this is far from a good outcome. 

“It is shameful that doctors are continually charged absurd tax on their pensions for doing their job and government are not acting.”

Another key issue under consultation that has been addressed by the latest response by the government was how to address age discrimination.

Workers below a certain age were automatically moved to a new pension scheme but those closer to retirement were able to stay in the legacy arrangements.  This approach was ruled unlawful by the courts under the McCloud judgement and in response the government has been consulting on how best to address this.

The Treasury has announced that it will be implementing a ‘Deferred Choice Underpin’.  This means that members of these schemes will not know for certain what rules will apply to their pension until they retire.  They will receive forecasts of their pension based on their legacy scheme, but their final pension may turn out to be different if the alternative scheme would have been better. 

For some workers there could be tax implications to be resolved if they end up switching schemes at retirement. 

LCP partner and former pensions minister Steve Webb said the decision by the Treasury will lead to “decades of complexity”.

He said: “It is understandable that the Treasury would opt for a deferred choice where members can look back and see which scheme would have been better for them.  But between now and retirement this means that members will simply not know what their pension is going to be and will also have to hope that future governments keep this promise. This will make retirement planning even more uncertain."