• Department of Health and Social Care consultation proposes new flexibilities for high-earning GPs and consultants hit by the pension tax taper ()
• Members could be given the option to reduce the amount of pension they build up – as well as the amount they pay in each year – under ‘50/50’ proposal
• NHS staff can also use ‘scheme pays’ if they don’t want to pay pension tax bills upfront
• Treasury has the power to solve NHS pensions crisis but refuses to act
Tom Selby, senior analyst at AJ Bell, comments:
“It is ludicrous that, at a time when the National Health Service is already under huge strain, the pension tax regime is exacerbating pressures on the system.
“The pension tax taper has always been a horror show of complexity but the fact it is now forcing GPs and consultants to turn down over-time – potentially putting patients’ health at risk – means the Government has been forced into urgent action.
“Unfortunately, the Treasury’s flat refusal to countenance ditching the taper has forced the Department of Health and Social Care into something of a convoluted fudge.
“While introducing flexibility so members can reduce accruals and thus mitigate any tax bills resulting from the annual allowance will help to a degree, it is inevitable many will simply choose not to work the extra shifts rather than jump through hoops which will ultimately lead to a lower pension.
“The Treasury needs to bite the bullet, accept the pension tax taper is simply a bad policy and scrap it altogether.”
How the annual allowance taper works
Whether or not someone is affected by the annual allowance taper depends on two things: ‘adjusted income’ and ‘threshold income’. Broadly, adjusted income includes all taxable income and employer pension contributions.
Threshold income is total taxable income and any salary sacrifice arrangements set up since 9 July 2015 less any personal pension contributions. Any lump sum death benefits where the recipient is liable to tax are also deducted from both income measures.
If someone’s adjusted income is above £150,000 and their threshold income is above £110,000, they will be affected by the taper. Their annual allowance will be reduced by £1 for every £2 of adjusted income above £150,000.
For example, if their adjusted income was £160,000 for a given tax year their annual allowance would drop by £5,000 to £35,000.