The Chancellor confirmed in today’s budget that he is raising the pension taper threshold to £200,000.
It has previously been suggested that this threshold would be raised in order to ensure doctors — and other higher-paid public sectors workers — aren’t hit with tax bills for overtime.
However this new threshold is significantly higher than previously suggested.
In his Budget speech the chancellor, Rishi Sunak, says this will take 98 per cent of consultants and 96 per cent of GPs out of the scope of this taper tax.
At the same time Sunak also announced that the annual pension allowance for those earning over this sum would be reduced: from £10,000 to just £4,000.
Those earning below this threshold have an annual allowance for pensions of £40,000.
Previously this taper had been applied once earning hit £110,000. At this point individuals were assessed, and any other earnings were added to their income. If this total exceed £150,000 then their annual allowance started to reduced.
This created problems for those working uneven hours and overtime. This has resulted in number of consultants and doctors in the NHS turning down additional shifts, or retiring, to avoid large tax bills, in some cases running into six figures.
Buck head of DC and Wealth Mark Pemberthy says: “The tapered annual allowance is probably the most complicated way the Treasury can achieve its aim of reducing pension tax relief for high earners. Increasing the threshold will relieve some of the pressures on the medical profession, however the ongoing complexity of the taper will continue to cause confusion and, as a result, could still leave individuals erring on the side of caution and choosing not to work.”
He adds: “Reducing the annual allowance to £4,000 for higher earners will make pensions an irrelevance for this group. There is a risk that board rooms around the country will switch off from the need or desire to provide quality pensions for their employees, above the minimum amounts required by law.
“The Treasury could achieve the same financial outcomes by reducing the headline annual allowance from £40,000. Today’s Budget is a missed opportunity to bring some much-needed simplicity back to pensions.”
The People’s Pension director of policy – and a former shadow pensions minister – Gregg McClymont, also called for more widespread simplification of pensions tax relief.
He says: “While we understand the need to support hard working senior doctors, the huge hike of the tax taper threshold by the chancellor helps only a small part of the working population – high earners – but does nothing for millions of basic rate taxpayers who could have benefited from comprehensive reform of pension tax relief rather than more tinkering.
“Two-thirds of the total tax relief paid out by the government already goes to higher rates taxpayers; a universal flat rate relief of 30 per cent would help those most in need to increase their retirement savings. A comprehensive review of this incredibly complicated system, under the remit of an independent Pensions Commission, could begin the process of reform.
“The Government’s announcement that they intend to review the ‘net pay anomaly’ – meaning that 1.7 million of the lowest earners miss out on tax relief due to a quirk – is a welcome step, but it needs to move quickly.”
Killik’s head of wealth planning Svenja Keller says: : “The change to pension rules for doctors – with more clarity and support for their annual allowance conundrum – is great news and, at long last, should be a significant boost to frontline healthcare.
“That said, by trying to help NHS doctors the increase in allowance threshold is now applicable to everyone. Why not just abolish it? This would have brought far more simplicity and the threshold is now so high that it will take many out of the tapering regime regardless.”
