Doctors are pension millionaires – so why are they striking?

Pension Strike - London

Pension Strike – London (Photo credit: Nick Atkins Photography)

My Dad’s a doctor and in retirement – he has a great pension  and who can begrudge him it?

He retired 25 years ago as a senior partner – on about one third of the final salary he’s be on today. Like him, I am not impressed by the protestations of today’s practitioners.

Like the  doctors will, I already pay 15% of my salary into a pension. It’s voluntary but I need to , to stop working someday this side of 70.

Like most Doctors I get 40% back in tax (some Doctors get 50% tax back).

If you are a Doctor asked to pay 14.5% of salary for your pension and getting 50% tax back, you are paying a net rate of 7.25%. You may think this is high but consider someone on £25,000 required to pay 5%, they look like they are only paying a third as much as you but in fact they are paying nearly 60% of your “net”rate. They are paying a net rate of 4% ; the doctor 7.25%.

There is a more fundamental point, someone on £25k has very little net disposable income. Doctors earn on average £110K pa, the extra cost of their pension (which buys the standard index-linked “gold plated” public sector pension) is not that great in £sd (nominal) . It is  miniscule in terms of “relative affordability”.

Doctors have to consider their high rate of tax-relief. It’s a privilege. After all, it’s other people’s tax that pays their wages. Not only are our taxes paying the NHS‘s pension costs, they are subsidising up to half the contributions the Doctor’s are striking about!

It feels like we’re serving the public servants!

Unlike Doctors I get 7% of my salary into a pension (not complaining – this is above the going rate in the private sector).

Doctors my age would be getting a total notional contribution of some 10 times my 7%. That’s an equivalent contribution from the tax-payer of well over £50,000 for a 50-year-old (like me).

What’s more, doctor’s pensions are secured by a promise from me and my children – till their death or the death of their spouse.

The obligation to pay the pensions of these striking doctors and their surviving spouses is shared by me and my children and probably my grandchildren!

I supported the massive hikes in Doctor’s pay over the past twenty years. Doctor’s were undervalued and underpaid.

They and the BMA have my respect and goodwill. But I cannot get my head round their current behaviour !

I’d ask them to remember that this pay increase disproportionately increased their pensions which are based on their final salary, not an average of their pay. Older doctors are getting huge pensions compared to their lifetime contributions (made against historically modest salaries).

The article below written by Ian Cowie in today’s Telegraph is well worth a read. Alan Higham has pointed out that the going rate to buy a £48k index-linked joint life pension is about 30 x the pension at 65 For £800,000 at 68 I would need to save at least £1,300,000. Yes that reads £1.3m – the capitalised market value of a typical Doctor’s pension!

Zoe Lynch has accepted that she was working on outdated annuities. I’m afraid when we wake up these days – the coffee doesn’t smell so good!

Pensions experts prescribed a reality check for doctors threatening strike action, pointing out that medical professionals make up three quarters of public sector workers who enjoy index-linked pensions of more than £50,000 a year.

Actuaries, the mathematicians who advise pension funds, calculate that the average doctor retires on an index-linked risk-free final salary pension of £48,000. Their patients would need to save £800,000 to buy that much income, which is why only one in 20 savers buying private sector pensions with an annuity can afford any inflation protection at all.

High and rising costs of delivering a decent pension have forced four in five private sector pension schemes to scrap the security of final salary or defined benefit schemes in favour of money purchase or defined contribution schemes, which rely on volatile stock markets. But final salary schemes remain the norm in the public sector.

Zoe Lynch, a partner at pensions lawyers Sacker & Partners, said: “The switch from defined benefit to defined contribution over the last few years started as a trickle but has become a flood, at the last count only 18pc of defined benefit schemes in the private sector remain open to new employees.

“Doctors classing themselves “unfairly targeted” by the changes in the public sector may find a lack of sympathy from a person waiting for a hip replacement operation, especially when that person may be on the state pension of £107.45 a week. To put it into perspective – to provide the average £48,000 annual pension for a doctor, a person in the private sector would need £800,000 worth of pension saving based on today’s annuity rates.”

Malcolm McLean, of actuarial consultants Barnett Waddingham, said: “The results of the strike ballot confirm that many doctors are very aggrieved at the changes that are being made to their pension arrangements.

“Most doctors will see their pension contributions rise – in the case of the higher earners from 8.5pc to 14.5pc of pensionable pay – as well as possibly having to work several years longer to secure a similar level of pension to now.

“Along with other public sector workers, however, they probably have little option but to come to terms with the need for further changes to their scheme beyond those introduced in 2008. Continuing increases to average life expectancy have called into question the cost and long term affordability of all public sector pension schemes and the doctors cannot really claim special treatment in that respect.

“Doctors will continue to have the benefit of high quality, guaranteed salary-related pension arrangements which are no longer generally available in the private sector. I suspect the limited industrial action now contemplated may not command much public support and is unlikely to persuade the Government to offer any further significant concessions in the present economic climate.”

Freedom of information requests by the Intergenerational Foundation (IF) disclosed that 78,000 former public sector workers enjoy pensions of more than £25,900; and more than 12,000 get more than £50,000 a year.

About 9,000 of the latter group, whose retirement income is double national average income, are doctors and this index-linked income is irrespective of any private work or savings.

Taxpayers’ total liability for public sector pensions, according to the IF report: ‘Are Government Pensions Unfair on the Younger Generation?’ is equivalent to £45,000 for every household in Britain and totals £1.2 trillion or £1,200,000,000,000.

An IF spokesman said: “This demonstrates the true scale of pension apartheid in the UK with news that 88pc of public sector workers are currently entitled to pensions related to their final salaries, which are typically the most generous type of pension, compared to just 10pc of workers in the private sector.”

About 13m private sector workers have no pension provision other than the state pension. The typical private sector worker who has a personal pension pot is only able to save an average of £24, 330 by the time they retire, according to the Pensions Policy Institute (PPI).

Because of historically low annuity rates, they only receive £3,700 a year income in retirement, compared to the average public sector pension of £7,000 a year. While public sector workers resent reducing the level of inflation protection their defined benefit schemes enjoy, 95pc of savers in the private sector with defined contribution pensions cannot afford any form of inflation-protection at all.

About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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