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Govt reviews pension flexibility for armed forces

Govt reviews pension flexibility for armed forces

The Ministry of Defence is analysing the recent proposal to increase pension flexibilities in the NHS Pension Scheme to see how these can be applied to service personnel, including armed forces doctors, FTAdviser can reveal.

In a consultation published this week (September 11), the Department of Health and Social Care proposed to allow defined benefit scheme members to choose a personalised pension growth level at the start of each tax year.

Members will then be given the option to top up their pension pots when they are clearer on total earnings for tax purposes, or phase in a large increase in pensionable pay.

However, this is an issue that also affects other public sector workers, including the ones in the Armed Forces Pension Scheme.

A Ministry of Defence spokesperson said: “We are currently reviewing the Department of Health and Social Care's proposals to assess their potential impact on service personnel.”

A freedom of information request from Quilter showed 3,840 scheme members breached their annual tax-free pensions savings limit in 2017/18.

This represented a fourfold increase on the 1,010 personnel who breached the allowance in 2015/16. The number of breaches peaked at 3,920 in 2016/17.

The main driver behind these breaches is the annual allowance taper introduced in 2016.

The taper 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.

In August, the government announced that HM Treasury would be reviewing the impact of the tapered annual allowance after doctors have been campaigning to scrap it for months.

Ian Browne, pensions expert at Quilter, noted that “perhaps now that another department has been dragged into this sorry fiasco, ministers will finally begin to realise that the solution is to ditch this failed policy”.

He added: “Refusing to do so will force public sector schemes to come up with a patchwork blanket of different fixes and fiddles to address the fallout.

“It really should never have come to this. The pension tax troubles of NHS clinicians have grabbed the headlines because they have directly contributed to longer waiting times and missed operations, a PR disaster which has forced the government’s hand.

“Doctors are also backed by a powerful lobby that have forced the issue onto the political agenda – even the prime minister had to wade into to promise a fix to the problem.”

Mr Browne noted that the pensions industry “has been banging its head against a brick wall for months trying to explain that this problem will spread to other departments”.

He added: “The policy disaster has forced the Department for Health into two consultations in just a few months, and now the Ministry of Justice will be forced to go through the same process.

“It is absurd that such as ill-conceived Treasury policy has been stubbornly implemented at the expense of so many key public services.