to believe the pension changes reported are good but not enough; Hunt should scrap the taper too?

[LargeDeviation]

Senior doctors and other professionals are quitting en masse because (amongst other things) they hit the lifetime allowance, together with the inflexibility of the NHS pension scheme.

If Jeremy Hunt raises the lifetime allowance to £1.8m it would be a big step. On the surface, an annual allowance increase to £60K would also be very useful for retention.

However, what is often missed when talking about pensions is the the taper. It means those high earners in their 50s who neglected their pension earlier can't really top it up much; in reality the £60K annual allowance is whittled down to as little as £4K per year.

Yes, people rightfully won't feel sorry for those on £312K a year who can only contribute £4K into their pension instead of £60K - but neither should be surprised when such people have enough in the bank/investments to just retire early. This type of high earner in their 50s would contribute over 10 times more in tax than the median earner for each year they kept working, whilst probably using very few public services in return.

In general, there are very few years in life when professionals can earn these large sums, and they tend to be concentrated in the 50s. These are exactly the years when it makes sense (from our society's viewpoint) to keep them working on.

Keeping a senior consultant who does 2 days a week private work active for 5 more years would massively benefit the exchequer, the NHS and the country. Punishing the 'rich' consultant (or investment banker/lawyer, for that matter) will just make them retire a few years early and pay much less tax.

The tapering of the annual allowance was a huge mistake. Let's hope Jeremy Hunt has the guts to stand up and abolish this. On the surface it would be a giveaway to the rich. In reality, based purely on the extra tax take, it would be of most benefit to those who rely heavily on public services.

If Jeremy Hunt is really going to scrap the 'senior doctor tax', he should do it properly.

I am not a doctor.

The lifetime allowance was one of the biggest reasons for my banker DH to retire at 55.

I'm sure that the vast majority of people with state pensions only will give a damn.

@Quveas How would you incentivise senior doctors to stay on then? Or do you think NHS waiting times for complex treatments which need senior doctors will magically get better?

Also @Quveas do you think it's better to give a ~£25K tax deferral per year to someone earning £312K per year which means they will contribute around £125K in income tax per year, or to effectively push them into retirement at which point they will pay close to 0 in tax?

@DuvetDownn Yes, but even if the lifetime allowance is increased massively (as suggested by the media), those earning over £240K won't be able to make use of it because of the taper.

For reference, not only am I not a doctor, I don't earn over £240K either.

However, I can see how incentives work, and the societal need to help high earners to keep working.

I think the best option is to limit tax fee cash to £1m and therefore 25% tax free.

Then unlimited pension and life time allowance.

Everything over £1.5m is taxed at 20% for Inheritance tax

Simple tax efficient and will keep senior staff in work.

@maeveiscurious I think Labour would slap IHT on DC pensions (at the full 40% tax) almost immediately. At which point they would cause many more senior staff to retire.

It is probably quite politically easy because DB pensions wouldn't be in scope beyond spousal transfers, so public service high earners would not pay. However, from the point of view of keeping private sector high earners working longer it would be an absolute disaster.

But maybe they should, and then we wouldn’t have higher earners using buy to let to top up their pensions, or senior doctors quitting the NHS

The idea that no one should care about anyone doing better than they are is pathetic and blinkered

The economy is an ecosystem and those at the bottom of it should be as interested in how to improve it as those at the top

@tenbob Exactly. I think senior doctors (and other well-paid professionals in their 50s) retire early for lots of reasons - burnout, they 'hit their numbers', want to spend more time with grandchildren, want to travel while they are still in full health, etc. They often have the financial means to do these things.

What doesn't make sense to me is the government effectively punishing them for working on, making the choice to retire easy, and losing massive amounts of tax in the process.

From earlier thread the annual allowance is very important for senior NHS doctors. The NHS pension is all or nothing and if it is defined by acturies as having increased in value above the annual allowance the doctor has to then pay back all of the "tax relief" on the additional value it has increased by. This is the growth that it will be calculated to have grown by when it is drawn (potentially in decades time). So they will be hit by 5 figure (or sometimes more) tax bills with potentially no huge corresponding increase in salary.

@yoyo1234 Yes the NHS pension scheme seems particularly stupidly inflexible.

I think they have very slightly improved it recently so the scheme can pay the extra tax rather than having to come out of income directly, but it's still terrible that senior doctors effectively get punished for working on.

@LargeDeviation I'm thinking labour will tax pensions too. Have no idea whether we should keep paying into pensions or not. If not where to put the money? ISA also subject to 40% IHT but without the tax relief that pensions benefit from. What a mess.

@LargeDeviation you have it right ... and if the senior doctor pays the extra tax out of the scheme, they have to do it by "borrowing" against their pension pot at potentially punitive terms. It would be much better either to increase the annual allowance at all income levels, or to introduce some flexibility into the contributions so that people hitting the "ceiling" can contribute less, or a bit of both.

@Amboseli Who knows, I'm certainly not a financial advisor...

I think DC pensions might still be useful even if subject to IHT (because at least the investments within them would be free of dividend tax and capital gains tax, and surely even Labour wouldn't change that) - so they would effectively become something like a 'semi-ISA' which is free of some investment taxes but not income tax.

I guess Labour might want people with DC pensions to spend them to get the income tax rather than passing pension pots on to their children, but one of the biggest psychological reasons people save up in the first place is to be able to pass something on.

I would think that putting IHT on pensions will mean fewer pension contributions even if IHT would be payable outside the pension in any case, which I regard as a quite negative outcome even before the extra early retirement it would cause.

@YankeeDad Is that right - doctors are charged interest for paying via the scheme??? That is really bonkers.

Agree with you OP. I don’t begrudge bankers or lawyers or anyone else their salary one bit. People making the efforts to plan for their retirement are sensible. Bankers pay a lot of tax, it would be better to scrap the taper so they can continue to contribute.
The fact that I’m trying to channel my DS in law or finance is neither here nor there 😂

I think the annual taper is an insane concept. It would be fairer on everyone and simpler if we just limited tax relief to 20%.

But I understand the lifetime allowance, once hit you can just opt out of your pension.

Plus £1mil annuity at retirement is £50k a year, plus state pension you're looking at almost £60k a year.

@LargeDeviation I do not have direct experience or exposure, but documents from the NHS that I have found online do indicate that the amount of tax charge paid by the scheme is treated as a notional negative-balance Defined Contribution account on which interest is charged at CPI +2.4% until retirement

So for a year with 10% CPI that would be a +12.4% increase in that balance, which is effectively something akin to a debt secured against their own pension, which would then get "repaid" through getting a lower annual pension, using a multiplier that might also be very unfavourable to the pensioner. I have not worked out how to identify the specific multiplier, but I have no reason to believe it would be favourable to the pensioner, and in fact it might be quite the opposite if it is anything like the multiplier used to convert a portion of the pension to become a tax-free lump sum.

Scheme pays is akin to an inflation inked equity release scheme on the pension pot (cumulative interest is generated) .

But if we give high earners these tax breaks, who is going to pay the doctor's high salaries?

I'm a relatively junior consultant, 3 years, age 42...

The three things that hurt me the most and have disincentavised extra work have been the cliff-edge tax thresholds...

Loss of child benefit at 60k despite being the sole earner at that point...

Loss of free child care at £100k desperately trying to stay under that at the minute....

The threat of an annual allowance bill though, is my biggest worry, far more so than LTA. Knowing I could get spanked with a £30k bill to pay immediately, any time, for a benefit I may or may not receive in the future.....

The LTA I'm not so fussed about with the proposed increase tomorrow, provided it also keeps pace with inflation, same with wages... I known consultants will be asking for pay restoration like the juniors, except their demand is likely to be 50%... Again, I'd take 10-15% if it had a link to inflation.

@TreadLight The NHS desperately needs to retain staff, especially senior staff. Taxpayers will pay their salaries (and eventually, pensions) but hopefully all the extra healthy people who can go back to work more after senior doctors treat them can more than justify this, purely financially! The moral obligation that people should get NHS treatment quickly by senior specialists where appropriate is even more important.

@YankeeDad /@yoyo1234 That is awful. The mess that is the NHS pension scheme has a lot to answer for.

@FixTheBone Yes, I think as a general principle the government should do always try to make it worthwhile for people to earn every extra pound you can (as long as it's earned ethically of course) - that's an extra pound they can charge income tax on.

Loss of child benefit for mid/high earners, loss of childcare provision/loss of personal allowance for high earners, and annual allowance tapering for very high earners all work aganist this principle.

For the lower paid, tapering of Universal Credit has a similar disincentive, which is why it's good the government have improved the taper rate.