Viscount Younger of Leckie has hinted that the prime minister and chancellor could look at pension tax reliefs in the Autumn Statement later this month.
In a debate on Pensions Tax Relief: Employment and Retention held this week (November 1), Lord Davies of Brixton asked what assessment has been made on the impact of the annual allowance on both employment and the retention of members of public service pension schemes.
In response to his concerns, Leckie said the government “greatly values” the work of all public sector staff, be they NHS workers, teachers or police officers.
“Public sector pension schemes are mainly defined benefit schemes and are among the most generous available,” he said.
“The annual allowance affects only the highest-earning pension savers, and the government estimates that 99 per cent of pension savers make annual contributions below £40,000—the level of the standard annual allowance.”
Discussing the relaxation of the rules, Davies said recent prime ministers promised to stem the exodus of doctors from the NHS.
Although the annual allowance is a general problem that can affect people across all DB pension schemes, he said it is concerning that the 10 per cent increase in the CPI this September and given the rules of the NHS scheme, some GPs will be faced with additional tax bills into six figures this coming year.
Davies said “tinkering with the rules” will not be enough and urged that radical action is required.
Likewise, Baroness Ros Altman also urged Leckie to go back to the department and look again at the tinkering that has happened to the NHS pension scheme, stating “this will not sort out the problem”.
“The fundamental issue is the way that the annual and lifetime allowances deter extra work and drive early retirement,” she said.
“Although the government has made commendable efforts to make some adjustments, those underlying problems persist.”
She added: “My noble friend said that this affects only the highest earners, but of course, within the NHS, these are often the most valuable members of staff, whom we need to keep.”
However, in the debate, Leckie acknowledged that it was important to look after those at the senior end of the NHS but explained that tax relief offered on pension contributions is expensive, costing the exchequer £67.3bn in 2020-21, with around 58 per cent relieved at the higher and additional rates.
“As I mentioned earlier, there are a number of other aspects on which we have taken action, and perhaps there is more to do to be sure that we can retain our very best doctors and senior clinicians,” he said.
Leckie said he will take the message to the government to consider higher rate tax relief and the amount of money that has been lost in that.
“As the house is aware, we have the Autumn Statement coming up on November 17,” he added.
“Although I am the first not to second-guess what might be in that, I am certain that the chancellor and the prime minister will be looking at all aspects, and particularly in this respect.”