Tax  

NHS pension tax decision a ‘wasted opportunity’ to fix system

NHS pension tax decision a ‘wasted opportunity’ to fix system

Advisers and the pensions industry have criticised the government for ignoring its chance to reform the pensions tax system to provide more security for doctors on their tax bills.

Dr Vishal Sharama, pension committee chair at the British Medical Association, said he was “disappointed” that calls to scrap the annual allowance for the NHS Pension Scheme have gone unnoticed leaving many doctors facing punitive tax bills.

Sharama said: “The NHS entered the pandemic with historic workforce shortages, and it needs to retain every doctor it has as we face the daunting prospect of moving through this second wave and into the recovery stage of the pandemic. 

“This decision a wasted opportunity to truly reform the complex pension taxation system that continues to disincentivise our most experienced doctors from offering their full potential to the health service and their patients.”

It comes after the government decided to not go ahead with its proposed flexibilities for the NHS Pension Scheme claiming its changes to the taper threshold went far enough to address the issue.

The government had raised the income threshold for tapering from £110,000 to £200,000, having announced the move at the March 2020 Budget.

Rachael Hall, independent financial adviser and NHS Pension specialist, said the latest consultation could have provided much needed security and control over scheme revaluation and resulting tax charges.

She said: “The taper has done much damage in such a short period of time that in some cases, members have no carry forward allowance left to use.”

Similarly, Parminder Gill, advice policy consultant at Wesleyan, said while there was “no doubt” the government's threshold changes had helped some higher earners, he said it was a sticking plaster rather than a solution to the complexities around the annual allowance.

Tool no match for advice

To help NHS workers understand their tax position better, a 'ready-reckoner' tool has been built which allows members to input their pay and pension details to get a view on whether working overtime may lead to an annual allowance charge.

Gill said the tool will be a helpful starting point but only “time will tell whether it can help with understanding the complexities of the taper”. 

He added: “It certainly won’t replace professional advice, and it’s hard to see how it will work for every scenario. 

“It doesn’t look like it will provide details of how to limit any annual allowance excess either, which really is a core issue members need more information on.”

Meanwhile, Hall said it could only be relied upon if the data is entered correctly in the first place.

She said: “The government should equip the scheme with better technology which directly takes into account a member's pension record, in order to reduce the risk of human error.”

Pension allowances have been an issue for senior NHS staff over the past couple of years.

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.