Tax  

New pension tax rules could be in place by April

New pension tax rules could be in place by April

The outcome of the government’s review on the tapered annual allowance is expected to be published in the upcoming Budget and reforms could be in place from the start of the next tax year, according to the British Medical Association.

In its manifesto, published on November 24, the Conservative government promised to fix the tapered annual allowance dilemma that is affecting doctors’ pensions.

It said it will do this by holding an urgent review to solve the “taper problem” within the first 30 days of winning the election and would work with the BMA and Academy of Medical Royal Colleges to carry out this work.

But it stopped short of promising to scrap the taper altogether, or to look at the issue more widely outside of NHS pensions.

The BMA, who has campaigned for a fix to the NHS pension crisis, wrote to the prime minister and the chancellor immediately after the election to ensure that the review was being carried out as promised in the manifesto.

According to Vishal Sharma, chair of the BMA pensions committee, the union has received confirmation from the chancellor that the review, led by the economic secretary, is currently underway with the BMA expected to meet with government shortly.

Mr Sharma said: “The outcome of this review will be announced in the upcoming Budget on 11 March and the BMA are clear that the necessary reforms need to be in place for the start of the next tax year.”

A Treasury spokesperson told FTAdviser: “We want to make sure that doctors spend as much time as possible treating patients. That’s why we are urgently reviewing the pensions taper to ensure doctors aren’t turning down extra shifts for fear of high tax bills. 

“We keep the tax system under constant review and make changes at budget, in the context of the wider public finances.”

Despite this, the BMA argued decisive action was needed instead of a review and is calling for the tapered annual allowance to be scrapped.

Mr Sharma said: “The annual allowance is fundamentally unsuitable for defined benefit schemes and we are doing all we can to demonstrate to the government why removing the annual allowance, including the taper in defined benefit schemes, is the only long-term solution.”

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.

Due to this rule, many doctors have been forced to cut their hours, leave the pension scheme or retire early to avoid being caught out by significant tax bills.

The government attempted to temporarily solve the taper issue by pledging to cover the tax bills of members of the NHS Pension Scheme who are in frontline clinical roles in England.

But these measures only cover the 2019/20 financial year and currently only apply to clinicians.