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Chancellor raises income level at which GP tax-free pensions are tapered

The Government has raised the threshold income at which doctors see their tax-free pension allowance tapered, from £110,000 to £200,000.

Currently, anyone with an annual income of £110,000 or more sees their tax-free annual pension allowance reduced from £40,000, down to as low as £10,000 for those earning the most.

Today the Government also announced the minimum level this tapered annual allowance can be reduced to will be £4,000 – instead of the current £10,000 – from April this year.

The change amounts to tax relief for some of the highest earners and the Government said its budget had set out ‘action to ensure that pensions tax rules do not deter doctors from taking on additional shifts’.

But the BMA has said such a move would not prevent high-earning doctors from refusing to take on extra shift and pensions experts have said the measure does not go far enough.

Outlining the new Budget today in the House of Commons, Chancellor Rishi Sunak said: ‘To support the delivery of public services, particularly in the NHS, the two tapered annual allowance thresholds will each be raised by £90,000.

‘This means that from 2020/21 the “threshold income” will be £200,000, so individuals with income below this level will not be affected by the tapered annual allowance, and the annual allowance will only begin to taper down for individuals who also have an “adjusted income” above £240,000.

‘For those on the very highest incomes, the minimum level to which the annual allowance can taper down will reduce from £10,000 to £4,000 from April 2020. This reduction will only affect individuals with total income (including pension accrual) over £300,000. Proposals to offer greater pay in lieu of pensions for senior clinicians in the NHS pension scheme will not be taken forward.’

The BMA has previously warned the tapered annual allowance is part of wider pensions problems that need to be resolved.

It has been calling for the tapered annual allowance to be scrapped altogether, as well as an end to the cap on how much pension pots are allowed to increase by, tax-free, in a year – which has been set at £40,000 since 2016.

Commenting on the announcement, BMA’s pension committee head Dr Visha Sharma said: ‘Today’s announcement shows that the BMA, which has fought tooth and nail for 18 months to find a solution to the pensions taxation crisis, is at last, being listened to. An increase in the threshold income of all workers to £200,000 demonstrates that the Government has heeded the warnings from the BMA and finally taken account of the evidence we have presented.’

But he added: ‘Today’s announcement is not everything that we asked for. We believe that the annual allowance is unsuited to defined benefit schemes such as the NHS. Many doctors with incomes far below the new threshold income will face tax bills as a result of exceeding the standard annual allowance which remains at £40,000.

‘This can happen simply following a modest rise in pensionable pay , for example when receiving a pay increment, taking on a leadership role or being recognised for clinical excellence. In addition, there is no change to the Lifetime Allowance and many doctors will still need to consider taking early retirement.’ 

Ian Macvie, pensions and retirement planning technical manager at Wesleyan specialist financial services mutual for doctors Wesleyan said: ‘Anything that reduces the likelihood of individuals in the NHS being hit with large tax bills for saving into their pension is a good thing.

‘We expect that many consultants will come under this new proposed threshold, giving at least some hardworking doctors and clinicians much needed headroom.

‘However, simply raising the taper threshold doesn’t go far enough in our view. The fundamental issue is the taper itself as it is unfair, not fit for purpose, and should be scrapped immediately.’

Pulse has long documented the impact of the current pension rules since reporting last year that younger GPs had chosen to cut their clinical hours to avoid extra pension charges, while more recently four in 10 GPs said they had reduced their shifts over fears of being hit by huge pension tax bills and prohibitive pensions taxation is also causing GPs to consider early retirement.

Health secretary Matt Hancock previously told Pulse that he was in discussions with the then-chancellor about removing the pensions tax taper, but this has not happened.

Last month, the BMA said it had been informed by the Treasury that the review of doctors’ pensions had commenced. The trade union later confirmed its invitation to talks as part of the review.

Meanwhile, stop-gap proposals approved by Mr Hancock in November were agreed to ensure doctors will take on extra shifts this winter without being charged for breaching their annual tax-free pension limit.