Treasury proposes raising taper threshold to £150,000

The Treasury is preparing to give tax relief to those earning more than £110,000 in an attempt to solve the NHS pensions crisis.

Initially reported by The Times, the Treasury has proposed raising the 'cliff edge' threshold for the tapered annual allowance from £110,000 to £150,000, arguing that this would solve the problem for the majority of doctors.

However, many experts have warned that the proposal will not be enough to address the issue.

British Medical Association (BMA) pensions committee chair, Dr Vishal Sharma, commented: “In its election manifesto, the government pledged to ‘address the taper problem’, but this proposal would do no such thing.

"It does not fix the fundamental problem of doctors being forced to limit the work they do to prevent being hit with significant charges on their pensions and many will still in effect be paying to go to work.

“Simply, raising the threshold income would not remove any of the complexity of the taper, nor the threat of doctors facing a ‘tax cliff’ when their income increases through promotion or taking on additional work. Indeed, unless there is also an increase in the level of adjusted income, this proposal would only make this ‘tax cliff’ steeper."

The median earnings for a consultant are £112,000, meaning that an estimated 90 per cent would fall below the new limit.

However, the changes are expected to apply to all workers, both in the public and private sector, and could have a large impact on HMRC revenue.

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.

The tapered and annual allowance gained attention after causing issues for NHS members, which saw some doctors cutting back hours and retiring early to avoid pensions taxation.

Following calls for ‘decisive action’ from the British Medical Association (BMA), a government review of the allowance was confirmed to be ‘underway’ last week.

Commenting on the proposed changes, Royal London pension specialist, Helen Morrissey, said: “While this news will be good for some in reality it is further evidence of HM Treasury choosing to tinker at the edges rather than tackle the source of the problem which is that the taper must be scrapped.

"In short this is like using a sticking plaster in place of major surgery – we need reform of pension tax relief.”

Both the BMA and the Office for Tax Simplification have called for the full removal of the taper and annual allowances for DB schemes.

AJ Bell senior analyst, Tom Selby, agreed: “The problem with the taper isn’t just the point at which it takes hold – it is the fact that, because things like overtime make earnings levels far from certain, many people will have no idea if or to what extent they will be affected.

“We also don’t yet know whether this is viewed as the final solution to the NHS pensions crisis by the Treasury, or the beginning of a wider programme of pension tax reform.

“The optics are certainly tricky as this move alone hands more tax relief to higher earners, while failing to remove the mind-boggling complexity created by the taper.”

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