What is to be done about the NHS pension debacle? The question is growing louder as the weeks go by if you listen behind the din of Brexit.
More pertinently, what kind of danger does it pose to the financial adviser?
The annual allowance, the lifetime allowance and the taper are all having painful effects on a raft of workers who, I suspect, they were never supposed to hit in the first place.
Type ‘NHS pensions’ into Twitter and you will see the often toxic debate is ragingThis is particularly the case with doctors, who are quitting in droves and taking early retirement.
There is a fast-growing revolt against these taxes. Type ‘NHS pensions’ into Twitter and you will see the often toxic debate is raging.
You have to be in the top 1.2 per cent of taxpayers in the country (the top 0.6 per cent of all earners if you include non-taxpayers), to be hit by the pensions taper in particular – a dastardly rule that whittles away your annual allowance from £40,000 to £10,000 for those earning above £150,000.
So, as many in the NHS are discovering, it actually kicks in at £110,000.
More evil still is that this rule can even result in doctors facing marginal tax rates of more than 100 per cent if they do additional hours because of the way earnings are calculated towards pension accrual. And who wants to pay to work?
When all of these rules came in, the point was that they were supposed to limit the pensions pots of the very wealthy. An income of £150,000 became the point at which you became super rich.
Only, of course, this is not the case. That top 1 per cent is a big band – encompassing NHS doctors and all the way up to oil billionaires.
In London, £150,000 – staggering as that sum sounds – does not go very far.
Rich or not, what is without doubt is that these rules are extraordinarily complicated.
The taper is the hardest to plan for, particularly because, as with NHS workers who do paid overtime, it can increase pensionable earnings drastically.
Then there is the danger of exceeding the annual and lifetime allowances.
Flexible working and pension schemes where annual pensionable earnings can vary make financial planning very hard. At least with a defined contributions pot you know where you are.
In the worst-case scenario, as seems to have happened at Lighthouse Group recently, advisers will be held responsible for tax charges over and above the lifetime allowance if they fail to take this in to consideration when financial planning.
It is an absolute minefield and sets a dangerous precedent, which no doubt professional indemnity insurers are studying closely.
The tax system is making a mess of financial planning. But I just cannot see any government having the courage to reverse it.
Budget documents show the tax taper will bring in £1.2bn this year – and no government can afford to wave goodbye to that kind of money.
Too much caution over cash
The end of the tax year was met with the usual rush for Isas. I wish there was one year we could flip the whole system on its head and get people investing from April 6, so they benefit from a whole year of tax-free growth.
But maybe we should just be thankful they are investing and saving at all.
What is telling is how much money was flowing into cash at the end of the tax year. I have written here recently about whether those nearing pension decumulation should be sitting in cash now because you cannot trust politicians at the moment.
But this rush to cash from everyday savers seems more like market uncertainty.
This is when it pays to have an eye on the long term. The FTSE 100 may look high, but the message should be to look for value in the unit trust and investment trust sectors.
Sitting in cash does no one any good, not if they have got years left to save.
Pointless policy add-ons
My latest bugbear is insurance policy add-ons.
I have been ploughing through some of these as they seem at best pointless and at worst unclaimable.
What is more is that the actual policies, whether for legal services, key replacement or no-fault accident coverage, seem to be run by third parties who will wipe their hands of any claim.
So much for greater transparency in the insurance sector.
That said, the other day I did see something I had never seen in 20 years of writing on insurance: an insurer that cut premiums when someone moved house.
A colleague who moved home called her car insurer to tell them her new address – and it knocked her premium down by £8. As I’ve said before, I find insurer pricing utterly baffling.
However, the insurer in question then managed to deliver this good news in the least transparent way possible. It wrote and explained it had changed her premiums but, because of a £19 admin charge, she would have to pay £11.
James Coney is money editor of the Sunday Times
