Chancellor Rishi Sunak has addressed the taper issue and significantly increased thresholds to stop doctors being affected by rising tax bills, but the industry is still calling it a missed opportunity to scrap the taper altogether.
As announced in the Budget today (March 11), from April 6 individuals with a threshold income of between £110,000 and £200,000 and adjusted income between £150,000 and £240,000 will no longer be impacted by the tapered annual allowance.
In his Budget speech Mr Sunak said: "The pensions tax system is preventing doctors taking on more hours.
"To significantly reduce the amount of people the tapered annual allowance affects, I am increasing the taper threshold by £90,000 removing anyone with income below £200,000.
“Based on their vital work for the NHS that will take around 98 per cent consultants and 96 per cent of GPs out of the taper altogether."
This measure is expected to cost the exchequer £180m in 2020/21, rising to £315m in 2012/22 before reaching a cost of £670m in 2024/25.
According to the accompanying Budget document, increasing the threshold will impact an estimated 250,000 who are affected by the taper.
The taper gradually reduces the annual 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.
The controversial issue had resulted in senior clinicians either retiring early, leaving the NHS Pension Scheme or turning down overtime to avoid tax bills.
Following today’s announcement, many across the industry have criticised the chancellor for failing to scrap the complicated rule altogether, saying his measure still did not address the core issue.
Steve Webb, former pensions minister, now partner at LCP, said: “The system of pension tax relief is far too complicated and this is a missed opportunity to make the system simpler and clearer.
"Although raising the thresholds will substantially reduce the number of people affected by the tapered annual allowance, some higher earners are still at risk of being caught, especially if they get a promotion or take on additional responsibilities.
"What was needed was sweeping simplification but what we got was more Treasury tweaking."
Darren Phelp, director of policy at Smart Pension, said although the chancellor has tried to address the issue he has simply moved it up the payscale with high earners still affected.
Mr Phelp said: “While the government is clearly right to act, it’s just shifted the issue further up the income scale and it is ridiculous that our pensions tax relief system has to include such fudges to make it workable and sustainable."
Last week, it was rumoured that the chancellor would raise the threshold to £150,000, so Jessica List, pension technical manager at Curtis Banks, said it was a “pleasant surprise” that the increase in the threshold and adjusted incomes were higher than expected.
Ms List said: “It was the simplest change which could have been made to the taper while attention is understandably focused elsewhere, so while we might have hoped for it to be scrapped altogether this is still good news for now."