The government has put forward proposals to review pensions tax relief rules in order to give senior NHS clinicians full flexibility over the amount that they contribute to their pensions.
In an announcement today, (7 August) HM Treasury said it has agreed to reconsider the rate at which tax relief is withdrawn from pension savings for NHS staff, so they can take on additional work without breaching the annual allowance and facing tax charges.
The rules are a particular problem with NHS workers, especially the tapered annual allowance – which restricts the annual allowance of those earning over £150,000.
The Department of Health and Social Care has said it will shortly open a consultation asking for views on proposals allowing NHS scheme members to set their contribution levels in 10% increments with the accrual rate being matched to this. For example, a 30% contribution rate would result in a 30% accrual rate.
These would replace the 50:50 proposal put forward in July, which would have allowed clinicians to halve their pension contributions in exchange for halving the rate of pension growth.
Chancellor of the Exchequer Sajid Javid said the government was “committed” to improving public services and reducing NHS waiting times, which had been growing amid the NHS pension tax problems.
Javid continued: “Critical to that is introducing flexibility into the system so that our hospitals have the staff they need to deliver high-quality patient care, which is why we’ve listened to concerns and will be reviewing the operation of the tapered annual allowance.”
The move was roundly welcomed by the industry, with former pensions minister and Royal London director of policy Sir Steve Webb stating the “U-turn” was welcome after months of “pretending that there wasn’t a problem”.
“In particular, the suggestion of a review of the tapered annual allowance is long overdue,” he continued. “This problem is not unique to the NHS nor even just to the public sector, and so any review must be comprehensive and cover everyone affected by this absurdly complex taper, including in the private sector.”
He added that the best solution by far would be “outright abolition”, even if this meant a slightly lower annual allowance across the board.
A review of the rules was one of prime minister Boris Johnson’s leadership pledges ahead of his election last month.
Lane Clark and Peacock senior partner Bob Scott noted that the tapered annual allowance and lifetime allowance have “already killed off pension contributions” for many high earners.
“Recognition of the difficulties that the tapered annual allowance has created for defined benefit (DB) schemes is very welcome indeed – but we do not underestimate the challenges in coming up with a method of taxing the accrual of DB pensions in a fair and practical way that is fiscally neutral.
“While we are glad to hear that the Treasury will be putting together proposals, we trust that a) there will be proper consultation on the proposals, and b) changes will treat public and private sector workers with DB benefits equally and fairly.”
“With the pensions taxation system creaking due to complexity piled upon complexity, we would hope that any changes would not exacerbate the problem.”