Chancellor rules out scrapping the taper for NHS pensions

Chancellor Philip Hammond has ruled out scrapping the tapered annual allowance (AA) in order to solve the NHS pension crisis, despite acknowledging its impact on doctor retention, he said today (21 May).

Responding to questions in Parliament, Hammond said that the tapered AA is necessary “to create a fair system and protect finances”, but that the Health Secretary Matt Hancock would have an announcement on making NHS pensions more flexible “as soon as possible”.

The problem stems from the introduction of the tapered annual allowance in April 2016, and the lowering of the tax relief threshold from £1.25m to £1m, which has meant that some GPs are penalised for continuing to pay into their pension fund.

Hammond said: “The NHS pension scheme and other public sector service schemes are among the most generous available in this country today. The tapered annual allowance is focused on the highest earning pension savers, to ensure that the tax relief they receive is not disproportionate to that of other savers.

“But, I do accept that there is some evidence that the AA charge is having some impact on the retention high earning clinicians in the NHS, and I am having discussions with the Health Secretary about how to provide additional pension flexibility for NHS doctors affected by the AA charge and my Rt. Hon friend will make an announcement as soon as possible.”

Throughout the debate, the Chancellor repeatedly dismissed calls to scrap the taper altogether.

“The overall reforms to pensions allowances which were made in the previous two parliaments and including tapered AA are necessary to create a fair system and to protect finances,” he said.

“These measures only affect the highest earning pension savers and expected to raise £6bn a year. We are monitoring the response of the highest earners in the NHS. We have to find a mechanism that is fair and appropriate and the right way to do it is through increasing flexibilities in the NHS and possibly other public sector schemes.”

Earlier this month, a Royal London report called for the government to scrap the taper, branding anything else as being a “sticking plaster” solution for a more ingrained problem.

Responding to the Chancellor’s previous comments around introducing flexibility into public sector schemes, the British Medical Association said it was “encouraged”, but added that “urgent action” must be taken.

Commenting on Hammond’s update, AJ Bell senior analyst, Tom Selby, said: “By introducing the wrong-headed pension tax taper the government has created an entirely avoidable crisis within the NHS. The Treasury’s refusal to countenance the obvious solution of scrapping the taper is therefore deeply regrettable.

“When the Brexit fog has cleared we hope the Government will acknowledge the current pension tax system system – with no fewer than three annual allowances as well as a lifetime allowance – is a mess and in need of simplification.

“If we can get to a pension tax regime that ordinary people can understand we can move a step closer to building genuine engagement, potentially boosting the retirement prospects of millions.”

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