Pension tax system needs to ‘work for everybody’ not just NHS – Truss

Chief Secretary to the Treasury Liz Truss has said that any changes to the pension taxation system will need to apply to all professions and not just NHS employees, as she branded Britain’s tax system “complex”.

Speaking during a debate on NHS pension taxation yesterday, 9 July, Truss said the annual and lifetime allowances are “kept under review” by the government to endure that the benefit of tax relief on pension schemes affordable.

Her comments come in the wake of the NHS pension crisis that has led to waiting times for routine surgery on the NHS increasing by up to 50 per cent, as senior doctors are refusing extra shifts due in order to avoid large tax bills.

Since the introduction of the annual allowance taper in April 2016, and the lowering of the tax relief threshold from £1.25m to £1m, many consultants are penalised for continuing to pay into their pension fund.

The Department for Health and Social Care is currently engaged in discussions with the British Medical Association, with the department planning on launching a consultation on a solution to the NHS crisis. It is proposing a new 50:50 scheme providing pension flexibility for clinicians in the NHS.

The proposal, like the one used in local government pension schemes, allows employees to reduce their pension contributions to 50 per cent, while maintaining employer contributions at 100 per cent. However, the British Medical Association and other leading industry figures said the approach would not provide the flexibility urgently needed.

Truss also noted that since last autumn, all members of the NHS scheme on the taper have been able to elect for the pension scheme to pay any tax charges now, and so avoid impacts on take-home pay, in return for an actuarially fair reduct6ion in their pensions.

Commenting on the situation, SNP shadow spokesperson (health and social care), Philippa Whitford, said: “Tapering lifetime allowances have already driven many senior doctors out of the NHS in their late 50s. The issue now is the tapering annual allowance, which is reduced by £1 for every extra £2 earned.

"This issue was raised in 2017; it has not just come to light. In May the Chancellor talked about a threshold of £150,000, yet the problem kicks in at £110,000, and many senior consultants and GPs earn above that. The average extra bill is £18,500, but many have faced tax bills of almost £100,000.”

Truss said the government is taking the issue “very seriously”.

“However, the house will recognise that the same tax rules must apply identically to everyone in the same situation, regardless of their employer. It is simply not possible for the tax rules applying to senior clinicians in the NHS to be different from those that apply everywhere else.”

She said the broader issue of the pension system, which is there to encourage people to save, has to be considered in a holistic manner. “It has to be designed to work for everybody in both the public and private sectors. That takes time of course, and we are working through some of the conclusions of the reforms that took place a few years ago,” she said.

“We pay more than £50 billion-worth of pension tax relief and it is important that we get value for money for that—that is why the reforms were conducted earlier—but of course we continue to review the arrangements to ensure that they are providing value for money as well as the right incentives for people to save for their later age.”

Truss said she is in favour of lower taxes and simpler tax system that “always rewards those who go out to work”.

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