Pensions  

Adviser dismisses govt's plans for doctors’ pension tax

Adviser dismisses govt's plans for doctors’ pension tax

Advice firm Wesleyan has criticised the government’s proposals to solve doctors’ tax issues saying they do not offer a viable long-term solution to the problems created by the tapered annual allowance.

A consultation on the rules of the NHS Pension Scheme was published in September, which included a proposal to allow members to choose a personalised pension growth level at the start of each tax year, a step further from the 50:50 split the government had initially proposed in July.

In its response to the department of Health and Social Care’s consultation Wesleyan claimed the proposals “may exacerbate existing difficulties by adding further layers of complexity to an already over-convoluted tax” and said the only practical solution was to abolish the tapered annual allowance.

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.

Doctors have campaigned to scrap this tax which caused many to leave the NHS Pension Scheme or cut their hours in order to avoid hefty tax bills.

Wesleyan said the tax should be scrapped as even qualified accountants and senior tax advisers struggled to understand the complex rules and to perform the necessary calculations. 

The adviser also claimed by keeping the taper the administration costs for the NHS would continue to rise as extra resources will be needed to cater for the increases in administration, including record keeping, producing pension savings statements, explanatory factsheets, modelling tools etc. 

It would also cost doctors as many are having to seek tax advice to navigate the taper. 

Their reluctance to take on extra work because of the taper is in turn leading to longer NHS waiting lists and likely to impact on patient care, Wesleyan warned.

One of the questions in the consultation was who pension flexibility should be available to and whether it should just be offered to those who would be affected by the taper.

Wesleyan said the proposed flexibility should not be restricted to one particular group as this could be seen as unfair or discriminatory treatment.

Wesleyan said: “If the new flexibility is limited to high earners, then lower earners could claim that it is unfair for high earners to have flexibility over their personal contribution rates, when such flexibility isn’t available to members on lower pay scales.  

 “However, if on the other hand the solution was not restricted, then all NHS staff would have the ability to reduce their contributions and benefits."

The firm added: "Inevitably, this would result in some NHS staff on modest earnings signing up for a reduced accrual rate to keep their personal contributions within their monthly budget. 

“This would result in poorer retirement outcomes for such individuals, and the extra administration inevitably created would prove a costly and time-consuming burden on the NHS Scheme administrators.”