Pensions  

Govt suspends tax rule for returning NHS workers

Govt suspends tax rule for returning NHS workers

The government has temporarily suspended tax rules which could have seen returning NHS workers hit with a significant tax charge on their pension income.

In a written ministerial statement, economic secretary to the Treasury, John Glen, announced the government had made further changes to abatement rules to ensure there is no negative impact on the pensions of workers returning to the frontline to help tackle coronavirus.

However, the temporary suspension of the rules, which affect retired individuals aged between 50 and 55, will only apply to payments made from March 1 to June 1, 2020 and will only apply to people returning to roles as a result of Covid-19.

This tax rule in question relates to protected pension changes for individuals who return to the same line of work within six months of retiring.

A protected pension age was available for those members who before April 6, 2006 had a right to take their pension benefits at an earlier pension age than the current rules allow. 

However, a member with a protected pension age of less than 50 who takes a pension before they reach the current minimum pension age of 55 may have their lifetime allowance reduced and could be at risk of a significant tax bill if they breach this.

People could also lose their protected pension age if they returned to the same job after retirement.

Claire Trott, chairwoman of the Association of Member-Directed Pension Schemes, said: “This is less about abatement and more about protected pension ages, hence the reference of 50-55. 

“When they changed the rules to make the minimum pension age 55 instead of 50 then they put some rules in place that meant if you went back to the same job your protected pension age would be void and all the income you then received until the age of 55 would be unauthorised.”

Steve Webb, partner at LCP, welcomed the changes and said it may be the case that pension tax rules need a rethink when the current crisis is over.

Mr Webb said: “There are many highly technical rules around early retirement pensions, mostly designed to avoid early retirement being abused. But in the current situation it would be outrageous if those who had nobly returned to work to help the fight against coronavirus were then to suffer a financial penalty for doing so.  

“It is right that these rules are suspended, if only for a temporary period. Once the crisis is over however, there may be a case for a more fundamental review, as it is clear that in the UK we have lost a lot of medical expertise from the NHS due to early retirement, in part driven by tax rules, and the current crisis is a reminder of how valuable those skills could still be.”

Last month (March 25), the government already made changes to the NHS pension scheme rules, which were also designed to protect the pension income of returning NHS workers.