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Chancellor downplays hopes for pension tax reform

The annual allowance is 'necessary' to 'deliver a fair system and protect the public finances', the Chancellor has said.

Chancellor Philip Hammond defended the reforms made to the NHS pension scheme, including the implementation of a tapered annual allowance in 2016, saying these were needed in order to guarantee fairness in the system and ensure the higher earners do not benefit from a 'disproportionate' tax relief.

His comments come after health minister Stephen Hammond recently admitted that the change to pension tax allowances 'coincides' with the growing number of GPs retiring early

Conservative MP Paul Masterton asked Philip Hammond whether scrapping the annual allowance would be 'the sensible and fiscally responsible thing' to do, 'given that the costs of increased waiting times, delayed diagnosis and knowledge gaps far outweigh the tax revenue generate'. 

In response, Mr Hammond said changes to pension tax allowances were 'necessary' to 'deliver a fair system and protect public finances'. 

He said: 'The overall reforms to pensions allowances that were made in the previous two Parliaments and include the tapered annual allowance are necessary to deliver a fair system and to protect the public finances. These measures affect only the highest-earning pension savers and are expected to raise £6bn a year.' 

Under the current NHS pension scheme, an annual allowance worth £40,000 limits the amount of money that can go into the pot each year. 

The annual allowance starts to reduce from this level for high-earners with total income over £150,000 per year. The minimum tapered annual allowance is £10,000, which only applies to those who earn more than £210,000. 

GP leaders previously warned that the annual allowance and concerns over large tax bills have caused serious damages to recruitment and retention, with doctors either reducing their hours or taking early retirement as a result.

However, Mr Hammond admitted that the annual allowance has a 'significant' impact on GP partners.

He said: 'The tapered annual allowance is focused on the highest-earning pension savers to ensure that the tax relief that they receive is not disproportionate to that of other savers.

'However, I do accept that there is some evidence that the annual allowance charge is having an impact on the retention of high-earning clinicians in the NHS. I have also recognised and acknowledged today that the operation of the pension annual allowance charge does have a significant effect —particularly, it seems, on partners in GP practices'.

In January, Pulse revealed that health secretary Matt Hancock was in discussions with the Treasury over changing the tax treatment of pensions due to the effect on GP retention, saying it is the ‘biggest concern’ GPs raise with him

Mr Hammond said Mr Hancock 'will make an announcement as soon as possible', as both the Treasury and the Department of Health and Social Care are 'close to reaching a conclusion'.

It emerged this month that there has been a ‘sharp rise’ in the number of GPs seeking pension advice, with some GPs facing personal bills of up to £50,000.

This came after research from Royal London revealed that doctors have resorted to a ‘hokey cokey’ approach to mitigate tax issues.

Readers' comments (13)

  • Doctors necessary to protect public's health says common sense.

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  • A warped sense of fairness. If you work harder, you get paid less and should have the same pension or less than one that does not work as hard. Is that fair? There is no encouragement to work harder. They have determined the maximum "allowed". The fake total pay tricks people to come to the UK as the take home pay is stagnant after 110k. Time to look elsewhere if you want to do better.

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  • David Banner

    Clearly Hammond will not change the thresholds for annual allowance, but second prize would be to allow GPs to voluntarily reduce the amount of income they wish to be superannuable , rather than the all or nothing system we currently have.
    But this statement suggests nothing will change, and experienced doctors will leave in droves when their AA tax bills start piling up.

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  • National Hopeless Service

    Well I am going to protect the public by reducing my sessions by half for two years and then retiring early. Utterly stupid. This government has become clueless to reality.

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  • All part of the "Establishment" plan to further the demoralisation of staff and to continue to run down the NHS in preparation for its transfer to private sector!

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  • ItSaDoGsLiFe

    Thankyou Mr Hammond.
    Your policies have prompted me to re-examine my finances, I have reduced my sessions by 25% with only a slight reduction in income & a significant reduction in stress.
    Am due to hit LTA in 3yrs so plan to retire then aged 57.
    Without all this I'd have aimlessly carried on working full time until 60.
    So again, thanks for the gentle push I needed.

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  • The problem that affects average earners is fluctuations in pay from one year to the next which can put you over the 40k limit as a self employed person. In my case it was a sudden change in the pension rules calculating my pension which led to a 200k bill as my pot jumped from 500k to 1,000,000 overnight despite an annual income of 60k. The pension people allow me to pay it over 20 years by reducing my pension. I win if I die before the 20 years is up!

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  • please-delete-this-fucking-profile-i-cant-delete-it-in-my-account-settings

    It's no surprise the position of the government is complete intransigence. This is the default position on every issue and has been for some time from the junior Drs contract to brexit. The entire country could fall into the sea but as long as the politicians aren't seen to be changing their mind they are happy. It's symptomatic of a weak government with a non existent majority entirely taken up with one issue, and that's not the NHS. There is no chance that a basically marxist 'opposition' (urrr if opposition is what they are?) would rectify this problem. I broadly agree with the idea of pension reform, instinctively I can't feel too much pain for people with pension savings in excess of a million pounds, if you've amassed that much you are indeed blessed and have no need to fret about your finances in old age. However I refuse to accept that a system that actively punishes experienced, helpful and valuable members of society from continuing to contribute makes any sense at all. Its absolutely stupid. There must be some way of tweaking the system that doesn't cause such a perverse outcome. I'm no expert, some ideas have already been given ..can't you let people continue to contribute just part of their salary, receive less tax relief or save their salary in some other investment vehicle? What's missing is a complete lack of imagination and will on the part of those responsible. It's like we don't actually have a government, just a bunch of mediocre technocrats terrified of looking weak. In a wider take there is indeed something very wrong with our politics and what our government has become. The worrying thing is I don't see anybody in the public domain talking much sense about anything. Debate on just about every issue is stale and timid. The mainstream obsesses over niche issues of personal identity and the politics of offence and all around us the basics of our lives, our health care system, criminal justice system, education system and the care of the elderly is slowly disintegrating. We live in weird times..but i guess it was always so. But really where is this country of ours heading?

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  • With a Union that openly attacks Tory policies and a membership that largely votes for anyone but the Tories, was anyone really expecting anything but the two fingered salute?
    And anyone thinking that a Labour Government would cut taxes for those earning over £110,000 better have a long lie down in a darkened room.

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