Tax  

Quarter of judges breach pension tax allowance

Quarter of judges breach pension tax allowance

A quarter of judges have breached their annual allowance on pension contributions in 2017-18, and faced tax bills as a result.

According to a freedom of information request from Quilter, 764 members of the Judicial Pension 2015 Scheme breached their annual allowance, which is more than double the number of individuals (303 judges) which surpassed this tax limit in 2015/16, when the tapered annual allowance was introduced.

According to judiciary statistics for 2018 there were a total of 2,978 judges in office in the UK, meaning hundreds faced increased tax bills.

The tapered annual allowance 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 adjusted income above £150,000 a year, £1 of annual allowance will be lost.

The issue has been brought to light by NHS doctors, as 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.

In June, Health and Social Care secretary Matt Hancock announced that the government will consult on proposals to offer senior clinicians a new pensions option, which will allow them to build their NHS pension more gradually over their career without facing large tax charges.

However, as Quilter pointed out, other public sector workers are also vulnerable to the tax charge.

Ian Browne, pensions expert at Quilter, said: "[There] has recently been a huge outcry from the medical profession as rafts of people have breached the annual allowance and are subsequently forced into a tax penalty.

"The result is doctors are choosing not to do overtime, putting strain on an already creaking NHS.

"However, our data shows other essential public sector workers such as judges are also starting to suffer with the unintended consequences of an intricately layered tax system in need of simplification.

"The knock on effect of this is that public sector workers are disincentivised to join these types of roles or increase their hours putting these systems under immense pressure."

The Ministry of Justice is aware of this issue, after a report from the Senior Salaries Review Body in October pointed out that members of 2015 New Judicial Pension Scheme were disadvantaged when compared to the legacy judicial pension scheme, which stopped accepting new members when the new pension fund was created.

The legacy scheme insulates its members from the effects of the annual allowance and lifetime allowance changes, which doesn’t happen in the new arrangement.

A MoJ spokesperson said: "We have committed to finding a long-term solution for judicial pensions and in the meantime have introduced a temporary recruitment and retention allowance for certain judges eligible for the new pension scheme."

Alistair Cunningham, financial planning director at Wingate Financial Planning, said he was not surprised by the number of judges breaching the pensions allowance, as a number of these will be higher earners.