Pension Relief Changes Announced In The Budget
Following rumours that Chancellor of the Exchequer Rishi Sunak would axe pension tax relief, today instead Sunak announced that the point at which tapering of the allowance kicks in from £200,000.
Any person with an income under £200,000 will now not be affected by the tapered annual allowance.
The Chancellor, in his speech, announced:
“To significantly reduce the amount of people the tapered annual allowance affects, I am increasing the taper threshold by £90,000 removing anyone with income below £200,000. Based on their vital work for the NHS that will take around 98% consultants and 96% of GPs out of the taper altogether.”
Many across the industry and the British Medical Association (BMA) have called for the taper to be ended as it has resulted in senior clinicians either leaving the NHS Pension Scheme, not accepting overtime or retiring early in a bid to avoid increased tax bills. These calls seem to have fallen on deaf ears however.
Ian Macvie, Pensions and Retirement Planning Technical Manager at Wesleyan, said prior to the Budget:
“Simply raising the taper threshold doesn’t go far enough in our view. The fundamental issue is the taper itself as it is unfair, not fit for purpose, and should be scrapped immediately.
“Until then, work-arounds that only change its parameters are unsatisfactory solutions, and we’ll continue to see cases of front-line clinical staff limiting their hours or leaving the NHS to protect their own financial health.”
Following the announcement, ex-pensions minister Steve Webb, a partner at LCP said to the Professional Adviser:
“The system of pension tax relief is far too complicated and this is a missed opportunity to make the system simpler and clearer. Although raising the thresholds will substantially reduce the number of people affected by the tapered annual allowance, some higher earners are still at risk of being caught, especially if they get a promotion or take on additional responsibilities. What was needed was sweeping simplification but what we got was more Treasury tweaking.
“The unintended consequences of this complexity have been seen most clearly for senior NHS staff. With the pressure on the NHS arising from the coronavirus outbreak, it is even more urgent that doctors can put in extra hours without the risk of unexpected pension tax bills. Although most doctors will now excluded from the tapered annual allowance it would have sent a much clearer message to abolish the taper altogether.”
Clare Moffat, Head of Business Development at Royal London, also felt that it was a missed opportunity:
“The Chancellor’s decision to raise the threshold at which the tapered annual allowance kicks in is welcome but the pension tax system remains overly complex. In reality, the Chancellor has missed the ideal opportunity to massively simplify the system by removing the taper altogether.”
Chris Knight, Chief Executive, Legal & General Retail Retirement:
“The Government’s move to provide pensions tax relief to allow high-earning doctors to work additional shifts addresses an anomaly and could help our health system at this crucial time. However, while this move seems engineered to address a specific need of the NHS, we would have hoped that today’s Budget addressed the retirement planning of a larger group of people in the UK. Ideally, this sort of measure is an indicative first step in the Government showing willingness to ease the taxation of pensions contributions across a larger group and truly incentivise more people to save as much as possible towards their retirement aspirations. This would be a positive move, provided any such changes to pensions tax relief and the wider incentive structure of pensions were made with a reasonable lead time and close consultation with the retirement industry, in order to ensure they are effectively implemented.”
What are your views on the announcement? Is this welcome news or should the chancellor have gone further and completely removed the tapered relief?