Third of judges breach annual allowance as numbers affected triple

Third of judges breach annual allowance as numbers affected triple

More than 1,000 judges breached their annual allowance in the 2020/21 tax year and are now facing significant tax bills.

A Freedom of Information request submitted by Quilter found 1,027 members of the Judicial Pension Scheme breached the annual allowance in the 2020/21 tax year, a 239 per cent jump from 2016.

Data from the Ministry of Justice showed in 2020 there were a total of 3,174 court judges in the UK, meaning approximately 30 per cent of all judges breached the annual allowance threshold, Quilter said.

The number of members who breached their allowance has increased each year since 2015/16, when only 303 judges had been affected.

Between 2019/20 and 2020/21 alone the number increased by 8 per cent, from 950 to 1,027.

The Judicial Pension Scheme gives members the chance to apply for a ‘scheme pays’ option which allows them to settle annual allowance tax charges through their pension scheme without needing to find cash upfront.

The FOI showed this option was used by 372 members in 2019/20 representing about 39 per cent of those who were affected.

The government is currently looking at reforming the Judicial Pension Scheme, with the view to create a new scheme in 2022.

The government’s consultation on this issue sets out that the new scheme, JPS 2022, will be a tax-unregistered scheme, meaning benefits accrued in the scheme do not count towards either the annual allowance or lifetime allowance limits.

But the judges are not the only profession which has been suffering from these tax issues.

In the NHS, senior clinicians have also faced huge tax bills and have therefore chosen to do fewer hours, retire early or leave the pension scheme to avoid complex tax rules.

Phil Carroll, director at Quilter Financial Planning, said: “Since the rules around the annual allowance were changed, we have seen a slew of senior members of key public services impacted. 

“The most notable profession impacted was doctors who were declining extra shifts to avoid spiralling tax bills. 

“It is laudable that the government has recognised this issue and are making significant changes to try and rectify it. However, this is not a problem exclusive to the judiciary and more needs to be done to help public sector workers across the board.”

The pensions tax system has been adversely affecting public sector schemes for a while now and although the Budget 2020 lifted the ‘adjusted income’ and ‘threshold income’ levels under the tapered annual allowance by £90,000 for the 2020/21 tax year, there is still a legacy of annual allowance issues for many.

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.

It means that for every £2 of adjusted income above £150,000 a year, £1 of annual allowance will be lost.

The taper applies to individuals who have a threshold income – the gross income minus any tax relievable contributions such as pension contributions – above £110,000.