Industry warns govt 'sticking plaster' NHS pension solution is 'half-baked'

The government's rumoured solution to pension tax issues facing the NHS is “a sticking plaster” and “half-baked”, industry figures have warned.

This morning (6 March), the Financial Times reported that the government is planning to increase the earnings threshold for when the tapered annual allowance kicks in from £110,000 to £150,000 in next week's Budget (11 March).

It hopes that this will ease the problem of high earning NHS staff cutting their overtime hours by providing them with a tax boost.

However, AJ Bell senior analyst, Tom Selby, said that although the change is “better than nothing”, it “feels like a half-baked solution”.

“The Treasury’s apparent attachment to the hideously complex annual allowance taper is damaging both to the NHS and the wider pension tax regime,” he added.

“It would make much more sense to simply scrap the taper as part of a wider simplification agenda designed to make the system of tax rules governing people’s retirement savings easier to navigate.”

Hargreaves Lansdown head of policy, Tom McPhail, agreed that the solution may not go far enough. He commented: “The proposed change is a bit of a sticking plaster solution.

“It will make it easier to plan income, pensions and tax liabilities for some high earners but the government really needs to tackle a more fundamental review of pension taxation to address the myriad other problems with the system.

“We also think the proposed solution could possibly lead to some situations where people could manipulate their income and pension remuneration packages to circumvent the rules.”

Despite calls for the taper to be scrapped, the government warned that this would be too costly.

The announcement comes during a testing time for the NHS, with the government considering calling for newly retired doctors and nurses to come back to work to support efforts tackling the coronavirus outbreak.

Aegon pensions director, Steven Cameron, noted that although raising the threshold “may reduce the number of higher paid individuals who face a tax penalty”, there will also be many who “still fear being caught out”.

“The Government’s priority right now must focus on health matters. Longer term, the overall system of pension reliefs and allowances needs a thorough overhaul to make sure it is fit for purpose and not just for the NHS,” he concluded.

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