The amount of extra tax being paid by public sector pension schemes on behalf of their members has doubled since the introduction of the tapered annual allowance.
Data obtained by Financial Adviser has shown how the tapered annual allowance is affecting more public sector professionals than just doctors.
Members of four public sector schemes paid £18m in pensions tax through Scheme Pays in 2017-18, as the number of people reaching the annual allowance limit is increasing.
This was an increase from £8.9m in 2015-16.
Scheme pays allows savers to settle annual allowance tax charges of more than £2,000 through the pension fund without needing to find funds upfront. However, individuals who use it will see their benefits adjusted at retirement and will pay interest on the 'loans'.
The rising use of scheme pays is seen as a symptom of the increasing number of people being caught by the tapered annual allowance
Data from several freedom of information requests submitted by Financial Adviser showed the Teachers’ Pension Scheme saw the highest amount of tax paid through Scheme Pays during 2017-18, at almost £10m on behalf of 393 members.
The data showed the NHS Pension Scheme saw nearly 3,900 members using the facility in 2017-18 but there was a big drop from almost £35m paid through scheme pays in 2016-17 to £3m in the year after.
This may be related to the fact that the pension fund changed its rules to include payments over £10,000 – when previously it could only be used for tax bills over £40,000 – or that members consider there is a financial advantage in personally settling any larger annual allowance charges.
Judges Pension Scheme
Armed Forces Pension Scheme
NHS Pension Scheme
Teachers Pension Scheme
Ian Browne, pensions expert at Quilter, said the growth in members using Scheme Pays – from 926 in 2015-16 to 4,612 in 2017-18 - illustrated the impact of the tapered annual allowance.
The tapered annual allowance, introduced in 2016, 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.
It means that for every £2 of adjusted income above £150,000 a year, £1 of annual allowance will be lost.
Mr Browne said: "The data shows just how steep some of these tax charges can be. Where members used the scheme pays option in the Teachers’ Pension Scheme, for example, the average tax charge was north of £25,000 for the 2017-18 tax year.
"That is a staggering amount and shows how staff in senior positions in public sector pensions may feel they’re better off opting out of the scheme or decreasing their hours to reduce earnings and avoid the taper."
Mr Browne also pointed out that the figures didn’t reflect those who paid their tax charge from their own pocket.
Last month the Department of Health and Social Care unveiled plans to introduce a 50:50 option would allow doctors to "halve their pension contributions in exchange for halving the rate of pension growth" amid concerns clinicians were retiring early because of the tax bills they faced.