Tax  

Civil servants call for pension tax changes

Civil servants call for pension tax changes

A civil servants trade union is calling on the government to extend the pension flexibilities it has promised doctors to the civil service, amid concerns over hefty tax bills.

In a letter to government chief people officer Rupert McNeil the FDA - which represents about 18,000 senior managers and professionals in public service – asked the Cabinet Office to be part of the discussion with HM Treasury about its review of the tapered annual allowance.

Lucille Thirlby, FDA’s assistant general secretary, pointed to the “significant tax burden” being incurred by civil servants for saving for their future.

According to calculations from the FDA's own actuaries, civil servants with annual earnings as low as £60,000 with more than 25 years of service could face a tax bill, due to the tapered annual allowance and the lifetime allowance.

She said: “Poor pay increases are being compounded with punitive taxation, leaving our members even more fiscally worse off.”

Introduced in 2016, 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 taper means that for every £2 of adjusted income above £150,000 a year, £1 of annual allowance will be lost.

HM Treasury will be reviewing the impact of the tapered annual allowance after doctors have been campaigning to scrap it for months.

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, most likely due to pension tax related bills.

Ms Thirlby said the trade union had been raising the issue and sought the introduction of a 50:50 scheme within the Civil Service Pension Scheme, as originally proposed for doctors.

This would allow scheme members to halve their pension contributions in exchange for halving the rate of pension growth.

She also noted that the Senior Salary Review Body had recommended in a report published in July “that pension flexibility should be examined as a matter of urgency with the aim of reducing the perverse incentives that senior public sector employees may be facing”.

The FDA is asking that the CSPS scheme advisory board reconsiders pension tax issues.

Other public sector scheme members have also been dealing with this issue, with a quarter of judges breaching their annual allowance on pension contributions in 2017-18.

maria.espadinha@ft.com

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