The Treasury is reviewing the impact of the tapered annual allowance for public sector workers, prompting calls for its abolition for all sectors.
In a bid to address the crisis in waiting lists caused by high earning medical staff declining overtime for fear of incurring punitive tax charges, the Department of Health and Social Care DHSC has today opened a consultation proposing full flexibility over the amount senior clinicians can put into their pension pots.
Around a third of NHS consultants and GP practice partners have earnings from the NHS that could potentially lead to them being affected by the tapered annual allowance.
The DHSC plan replaces the 50:50 proposal put forward for consultation in July.
Starting from next financial year, the new rules would allow senior clinicians to set the exact level of pension accrual at the start of each year. For example 30 per cent contributions for a 30 per cent accrual rate, or any other percentage in 10 per cent increments depending on their financial situation. This would give them room to take on additional work without breaching their annual allowance and facing tax charges.
Employers would then have the option to recycle their unused contribution back into the clinician’s salary.
But critics have called for a fundamental review of complex pension tax rules that create uncertainty and disincentivise saving for retirement.
Chancellor of the Exchequer, Sajid Javid, says: “We’ve listened to concerns and will be reviewing the operation of the tapered annual allowance. This will help to support the delivery of our vital public services.
Baroness Altmann says: “I would suggest a number of urgent measures are required, that would help NHS staff feel more confident about the way they will be treated by their employer. Surveys show that many are going to reduce their NHS work and also plan to retire early – this will add to the pressures on health services and the Government must urgently restore morale.
“All staff should be offered access to advice from independent financial advisers who understand the workings of the NHS scheme and can help them plan their work and pension;
“Reduce or remove cost of ‘scheme pays’ so no interest is charged on the amount paid out. If those who do face tax charges for exceeding the reduced annual allowance are able to reduce their pension without the interest penalties, they would feel the system was fairer;
“Change the way the taper works, so that the annual allowance is only reduced for the following tax year, not the previous one. This would get round the problem of retrospection and allow people to plan more confidently and adjust their pension contributions properly;
“Ideally, scrap the taper rules altogether. They are too complicated and, if there is a Lifetime Allowance, it seems illogical to also have an annual limit on contributions. There should be one or the other, not both.”
Aegon pensions director Steven Cameron says: “Highly paid medical professionals are finding taking on extra work creates a significant tax bill because of resulting extra pension entitlements which break pension tax limits so we welcome the Government’s intent to take their pension plight seriously. Higher earning individuals faced with this dilemma shouldn’t be forced to turn down work or take early retirement. We support them being given the flexibility to ask for employer pension contributions to be dialled down in return for an addition to salary to avoid a potential tax penalty. Some employers in the private sector already allow this flexibility.
“However, the suggestion that medical professionals specifically might be offered special concessions elsewhere, are worrying. One suggestion is they might be exempt from the tapered annual allowance which reduces maximum pension contributions for those earning above £110,000. These highly complex rules are affecting an increasing number of individuals across many employment sectors, public and private. We recognise the hugely important contribution to society medical professionals play. But this should be reflected in their pay, not through some concession linked to tax rules on pensions. If we start linking pensions tax allowances to a value judgement about the nature of people’s work, where might this take us?”
“We also need to consider the message this consultation sends to wider society. While the issue only affecting highly paid individuals, it risks sending out a damaging message about the benefits of pensions. People should be strongly encouraged to save what they can for retirement, and reading about the benefits for some of reducing contributions sends out a dangerous signal.”
