Potential changes to the tapered annual allowance threshold, which the Treasury could increase from £110,000 to £150,000 to ease pressure on senior NHS doctors, have been criticised amid calls for wider taxation reform.
Reports suggest the Treasury is considering the change to stop doctors in the NHS facing unexpected pension tax bills for breaching the threshold as a result of working extra shifts.
At present, anyone with a ‘threshold’ income above £100,000 and ‘adjusted’ income above £150,000 has their annual allowance reduced. A report in The Times suggested plans have been drawn up to raise threshold income to £150,000 to ease pressure on senior doctors.
AJ Bell senior analyst Tom Selby said while the £40,000 would help reduce or eliminate shock pension tax bills for high earners – including NHS consultants – the uncertain nature of the taper made tax planning almost impossible.
“The problem with the taper isn’t just the point at which it takes hold – it is the fact that, because things like overtime make earnings levels far from certain, many people will have no idea if or to what extent they will be affected.
“When you combine that uncertainty with the mind-boggling complexity of calculating the taper, particularly in relation to defined benefit (DB) schemes, it is far from clear that simply raising the point at which it takes effect will be enough to stop doctors refusing shifts.”
Intelligent Pensions technical director Fiona Tait said: “The issue is one of over-complexity and ill-conceived tinkering with the pension tax relief regime.
“The obvious and most popular action would be to simply abolish the taper, and to call for a wider review into pension tax relief in general. The whole intention of pensions simplification in 2006 was to get rid of the complexity and manage costs via two simple allowances, and I can see no reason why we cannot return to that aim.
“Since 2006 there has been progressive tinkering with the rules based on short-term objectives, which have put us back to a position where tax relief is almost impossible for most people to follow and has resulted in a number of unintended consequences such as the impact on the NHS.
“Such a review would allow the government to look at ways of recouping the revenue lost by the abolition of the taper and making the system fairer and more sustainable at the same time.”
Royal London pension specialist Helen Morrissey added: “While this news will be good for some in reality it is further evidence of HM Treasury choosing to tinker at the edges rather than tackle the source of the problem which is that the taper must be scrapped. In short this is like using a sticking plaster in place of major surgery – we need reform of pension tax relief.”