Money

Treasury in U-turn on doctors’ pensions tax trap


The government is to review pensions arrangements that have left some senior doctors and judges facing crushing tax rates.

The Treasury has agreed to reconsider the “taper” — the rate at which tax relief is withdrawn on pensions savings — not just for NHS workers but across the public sector. The taper sometimes saw doctors facing marginal tax rates of more than 100 per cent when they were caught in the pensions trap.

The change was welcomed by doctors’ leaders who have been grappling with an exodus from the profession as experienced clinicians have retired or cut back hours to avoid steep tax charges.

The government said it would also consult on allowing senior staff to select their level of pension accrual at the start of the year, to give them the “headroom” to take on additional work without breaching their annual allowance.

The announcement was a striking policy reversal. The tapered annual allowance was introduced in 2016 by George Osborne when he was chancellor as a means of clamping down on pensions tax relief for the very highest earners. Ministers had previously defended the policy as a way of ensuring the highet paid contributed towards the public purse.

The taper can see the standard pension tax-free allowance of £40,000 gradually reduce to £10,000 for those with earnings of more than £110,000. The measure was designed to ensure that tax incentives for retirement saving, currently costing the government about £26bn a year, were affordable and targeted where they were most needed.

It has led to a big reduction in the tax relief claimed by top earners in the private sector but has ensnared high-earning public servants, such as GPs, surgeons and judges, whose pension contributions are set by the government and can do little to avoid tax charges on pension growth.

Sajid Javid, the chancellor, said the government was committed to ensuring Britons saw a real difference in public services, “including getting quicker GP appointments and a reduction in waiting times”.

Critical to that, he said, was 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 Treasury and the health department said the NHS pension scheme was “recognised as one of the most generous in both the private and public sectors” but acknowledged that about a third of NHS consultants and GP practice partners had earnings that could lead to their being affected by the taper.

Steve Webb, director of policy with life insurer Royal London and pensions minister when the tapered allowance was drawn up by the Treasury, welcomed the review but said it needed to cover “all those who are affected, not just the public sector, and needs to lead to urgent action”.

Chaand Nagpaul, who chairs the British Medical Association’s ruling council, welcomed the announcement and said the government had listened to its concerns by allowing doctors to choose the amount they and their employer wished to put away. But he warned that unused employer contributions must be “paid back into doctors’ salaries”.

He added that overhauling the “punitive” tapered annual allowance “will make a difference to all doctors, including consultants, GPs and medics in the armed forces”.

Chris Hopson, chief executive of NHS Providers, said the new government was bringing “a welcome pace and focus” to the NHS pensions issue that was “previously lacking”.

But he said that key staff would not be enabled to work the extra hours needed and put off plans for early retirement “until we have a clear, definitive, solution fully in place. So we have to move fast,” he said.

Additional reporting by Sebastian Payne



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