At a speech this morning the Secretary of State for Health and Social Care, Matt Hancock, has announced that there will be an ‘urgent review’ into the tapered annual allowance for pension tax relief and its effect on NHS staff.
But this proposal has been criticised as ‘not urgent enough in a crisis’ by Royal London Director of Policy, Steve Webb.
During 2019/20 there has been increasing attention on the problems caused by the ‘tapering’ of the annual allowance limit for pension tax relief. Higher earners can see their limit reduced from £40,000 to as little as £10,000, and the system has a ‘cliff edge’ which means that in extreme cases someone can actually face a tax bill which more than wipes out their additional earnings. The NHS initially responded in the Summer of 2019 by consulting on a simple change to the NHS pension scheme which would have allowed doctors to opt to accrue 50% of their pension rights for 50% contributions. This proposal was quickly dismissed. The Government then came back with a more complex reform to the NHS pension scheme which would have allowed doctors to opt for a different rate of contributions to match their circumstances, as well as promising a review of the taper. Progress on these ideas was stalled because of the General Election. During the Election, the Government came up with a third proposal – to reimburse doctors for one-off tax bills incurred in 2019/20 via the annual allowance tax charge. Under this plan, the NHS pension scheme would pay any such bills next year, and doctors would not face any reduction in their pension at retirement. Now the health secretary has announced an ‘urgent review’.
Commenting, Steve Webb, Director of Policy at Royal London said:
“The tapering of the annual allowance has caused major problems in the NHS. All year we have been hearing of doctors who are restricting their hours to avoid the risk of large lump sum tax bills. The tapered annual allowance is complex and makes it very hard for taxpayers to know where they stand. The solution is to abolish the taper outright, even if this means a lower across-the-board annual allowance for all. What we do not need is another review, however ‘urgent’. There is a crisis in the NHS this winter, and to respond to this with a further review is to fail to grasp the urgency of the situation”.
About Royal London:
Royal London is the largest mutual life insurance, pensions and investment company in the UK, with assets under management of £139 billion, 8.6 million policies in force and 4,348 employees. Figures quoted are as at 30 June 2020.