Some 289 members of the Civil Service Pension Scheme paid £6m in tax through scheme pays in 2017/18, as they breached their annual allowance.
According to data from the Cabinet Office in response to a freedom of information request from union Prospect, there was an increase of 33 per cent on the tax paid the previous year, when 208 civil servants opted to pay their tax bill through their pension, with a collective amount of £4.5m.
Over three years the increase amounted to almost 600 per cent.
Total tax charge
Scheme pays allows savers to settle annual allowance tax charges of more than £2,000 through their 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.
FTAdviser reported in July that members of four other public sector schemes paid £18m in pensions tax through scheme pays in 2017/18.
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.
FTAdviser reported on Wednesday (August 7) that HM Treasury will be reviewing the impact of the tapered annual allowance, after doctors have been campaigning to scrap it for months.
This was as part of a further consultation on the rules of the NHS Pension Scheme, which will soon be published and replace the document published two weeks ago.
Garry Graham, Prospect deputy general secretary, said the union welcomed the government’s decision to consult on flexibilities in the NHS Pension Scheme and to review the impact of the taper on public sector workers.
However, Prospect was concerned that in the civil service the annual allowance tax charges incurred by members who have elected for scheme pays have ballooned from £1.8m in 2015-16, to £4.5m in 2016-17 and £6m in 2017-18.
He said: “The true extent of the tax charges may be even greater with members paying charges directly to HM Revenue & Customs rather than via scheme pays or from inaction of members over their tax liability.
“Prospect has members across the public sector and it is clear that the tax revenue generated from the annual allowance is coming disproportionately from public sector pension scheme members. This cannot be fair and must be addressed.”
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