Govt review of tapered annual allowance ‘underway’ - BMA

The British Medical Association (BMA) has confirmed that the government review of the tapered annual allowance is now "underway".

The review is being led by the Economic Secretary, John Glen, with the outcome expected to be announced in the upcoming budget on 11 March.

The “ludicrous pensions taxation system”, as described by BMA, has drawn attention after the annual and tapered allowance caused issues for NHS staff members, with some doctors cutting back hours and retiring early to avoid pensions tax issues.

The government yesterday (9 January) said that it is “difficult” to predict the impact of the tapered annual allowance on individual high-earning doctors.

BMA pensions committee chair, Vish Sharma, commented: “This is encouraging but ‘a review’ is not the destination.

“The annual allowance is fundamentally unsuitable for defined benefit schemes and we are doing all we can to demonstrate to the government why removing the annual allowance, including the taper in defined benefit schemes, is the only long-term solution.”

Following the formation of the new government, the pension industry stressed the need for “decisive action” with the BMA calling for the removal of the taper and annual allowance for DB schemes. This is also in line with recommendations made by the Office of Tax Simplification (OTS).

Commenting on the potential outcomes of the review, RSM tax partner, James Gransby, said: “Ultimately the government will not want to turn off the tap to wider tax revenue whilst fixing the NHS pension problem.

“Any changes made to the tapered annual allowance will decrease tax revenue, which was upwards of £200m in 2017/18, but would certainly go some way to solving the crisis.

“Scrapping the taper altogether should be the only option considered when looking at this area. To do full justice to the OTS and their role in advising the chancellor on setting policy then scrapping AA in DB schemes and LTA in DC schemes would be the most robust route forward and avoids having to constantly revisit this issue ad nauseum.”

Emergency interim plans to allow pension tax bills incurred by doctors to be paid through the ‘scheme pays’ option were confirmed by NHS England in November, but subsequently raised further concerns around tax avoidance.

Sharma commented that “we hope we have reached the final leg of this journey”, adding that “although it has been slower than we would have liked, we are making progress.”

Gransby added: “Doing nothing will see the issue worsen as any brought forward unused allowances from earlier years will now have been used up in many cases. This is a crucial time for the problem to be resolved rather than applying more 'sticking plaster' solutions and decisive action is needed.”

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