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Hammond dismisses £6bn pension tax reform

Hammond dismisses £6bn pension tax reform

The Chancellor of the Exchequer Philip Hammond (pictured) has dismissed requests to scrap the tapered annual allowance, and is working on making the NHS pension scheme more flexible instead.

In a debate in Parliament today (May 21), Mr Hammond said the overall reforms made to pensions, which included the creation of the tapered annual allowance, were "necessary to deliver a fair system and to protect the public finances".

He said: "These measures only affect the highest earning pension savers and are expected to raise £6bn a year."

Mr Hammond accepted, however, that there is "some evidence that the annual allowance charge is having an impact on the retention of high earning clinicians in the NHS".

Mr Hammond reiterated that he is in discussions with the Health secretary on how to make pensions more flexible for NHS doctors affected by the annual allowance tax charge, with measures expected to be announced "as soon as possible".

He added: "Treasury and the Health department wish to address this problem, we need to find the mechanism that does it in a way that is fair and appropriate.

"The right way to do it is through increasing flexibilities within the NHS [pension scheme] and potentially in other public sector schemes."

Concern about doctors' pensions has increased significantly since the introduction of the tapered annual allowance in 2016.

This gradually reduces the allowance for those on high incomes, meaning they are more likely to suffer an annual tax charge on contributions and a lifetime allowance tax charge on their benefits.

The tapered annual allowance means that for every £2 of income above £150,000 a year, £1 of annual allowance will be lost.

It emerged in December that the number of members leaving the NHS Pension Scheme was five times higher than that seen by other public pension funds.

Several experts have been calling for the government to scrap the tapered annual allowance, such as Steve Webb, former pensions minister and director of policy at Royal London.

The mutual insurer called has suggested a cut to the annual allowance as a potential solution to the problem.

Tom Selby, senior analyst at AJ Bell, said by introducing "the wrong-headed pension tax taper" the government has created an "entirely avoidable crisis" within the NHS.

He said: "The Treasury’s refusal to countenance the obvious solution of scrapping the taper is therefore deeply regrettable.

"While ministers are clearly wholly focused on Brexit matters and the Conservative leadership battle right now, addressing the very real problems created by the taper needs to be a priority.

"It is frankly bonkers that complexities in pension tax rules risk leaving patients struggling to find a doctor to help them."

maria.espadinha@ft.com

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