Pensions  

Renewed calls for pension tax reform

Renewed calls for pension tax reform

Pension providers have renewed their calls for pension tax reform after it emerged the Health Secretary has lobbied to scrap tax relief limits for GPs.

In an interview with trade publication Pulse, Matt Hancock revealed he was in talks with the Treasury to change the lifetime allowance on pensions for GPs to help address retention problems in the sector.  

Simon Goodwin, spokesperson for the Department of Health and Social Care, confirmed the statement to FTAdviser, but said no further details were available at this point.

The lifetime allowance stands at £1.055m for the 2019/20 tax year, or an annual pension of £52,750 for defined benefit pensions.

This means doctors could see little benefit in continuing to save into a pension scheme past this point.

Data published in December indicated there was a pension opt-out 'epidemic' at the NHS Pension Scheme, with leaver numbers five times higher than at other public pension funds.

But concerns about the lifetime or tapered annual allowance were not the only reasons behind doctors leaving the pension scheme as Royal London's data showed younger NHS workers (aged 26-35) were the most common age group to opt out.

The industry has welcomed the idea of reform but warned any changes to pension tax needed to be rolled out to all pensions.

Steven Cameron, pensions director at Aegon, said different treatment between professions would further complicate an already complex pension tax system.

He said: "Some GPs find that a year’s contributions going into their scheme can exceed the ‘annual allowance’, while others find the value of their pension grows over time to exceed the maximum ‘lifetime allowance’, which in both circumstances results in tax penalties.

"It’s bizarre that some GPs say they’re being forced into early retirement to escape this pensions tax penalty.

"But it’s not just GPs who are affected. These discussions really do need to look more broadly at the impact pensions limits are having on a range of professions."

Mr Cameron urged the government to reverse previous cuts to the lifetime allowance, which stood at £1.8m in 2012, or to scrap it altogether.

He said: "We should be encouraging people to save more for longer lifespans in retirement, not forcing them into early retirement to escape a tax bill."

Tom McPhail, head of policy at Hargreaves Lansdown, agreed special treatment for GPs was not the answer.  

He said: "The problem is the Treasury has squeezed down so hard on pension allowances that increasing numbers of mid to higher earners with long service in the public sector are going to find themselves in the same boat.

"The answer doesn’t lie in carving out some special exemption for GPs. The whole pension tax system needs an overhaul, to the benefit of all workers, not just GPs."

Ian Browne, pensions expert at Quilter, suggested the Treasury would be reluctant to make a set of separate rules for the taxation of doctors' pensions as it would set an "unfair and dangerous" precedent.