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.

@FixTheBone On pay: it is perhaps surprising that the Tories are ignoring market forces. 50% pay increases are never going to happen, and they shouldn't, but there should be more acknowledgement that mid or senior doctors can earn much more abroad.

I think doctors should be able to get stinking rich working for the NHS, as long as they serve it faithfully for many years. If they could get an excellent salary in the NHS then there would be less private work and less agency wastage etc. Same with dentists.

For such large pay increases, there would have to be improvement in processes/outcomes at the same time though - it would need to move closer to e.g. the pre-Blair GP contract with compulsory weekend/evening rotas for community GP practices though.

Someone earning £312k pa is unlikely to retire on less than £50, more likely £150k, so they’re not going to be paying almost zero tax

I wouldn't even mind paying the exact same tax overall, but there's points where you earn an extra hew hundred quid and end up taking home less.

Prime example was my wife (salaried GP) who got a backdated 1. 5% pay rise which took her into a higher tax bracket, and increased her pension contributions by 1.8%, reduced her take home by £60/month.

I think tax overall needs to be simplified and linear to prevent this.

@MereDintofPandiculation They wouldn't be able to draw on their pension until late 60s.

Between early retirement and pension age, their income would be mainly from investments, for which the taxes applicable would be CGT/dividend tax and income tax on property/bank interest. They may also draw down on savings in which case no income tax would be payable.

You may be right that they have investments earning large passive income but I doubt the tax generated would be comparable.

Actually I'm wrong, it seems the NHS scheme allows drawdown from 55 but at a poor rate.

They wouldn't be able to draw on their pension until late 60s. Pensions other than State Pension can usually be drawn on from about 10 years before the state retirement age.

@MereDintofPandiculation Yes I was wrong about this, sorry. However it seems what you get paid is far far worse when you take it at 55 compared to e.g. 65 in the NHS scheme.

In any case, if they earn £100K after retirement (which I think is more than many actually would) then I suspect tax will be no more than £30K, as some of that income won't be subject to income tax, or be subject to savings/dividend/capital gains allowances.

Agree with you OP. No point disincentivising work and to those mentioning those on low wages /state pension - people with the lowest incomes are completely dependent on the NHS for their health care into old age and will benefit more than those higher paid (who could go private) from an effective, well staffed NHS.

It is like a reflex with some people - even if they know the country is better off with a political decision that is bit too capitalist for them, they have to flash their socialist credentials. Even if the worst off in society would be better for, in this case, having more doctors, it matters more to be seen to be left-wing than making a decision that helps everyone.

I’m affected by the taper, and I’m relaxed about it. Let’s be honest, I can save enough from post tax income to give a comfortable lifestyle. Looking at it another way, if the annual allowance is raised to £60k and they eliminate the taper I’ll get £27k of tax relief. On an average salary of £30k then that’s almost 10 average tax payers working just to fund my tax relief. That can’t be right, and I can’t believe that doctors think it’s right either?

I voted Yabu because its budget day tomorrow not today. You haven't seen the detail yet op, so who knows what's in it.

@Tryingtokeepgoing However, in the NHS doctor case, they are forced to contribute the full whack to their pension (or opt out altogether) - and then either pay tax out of their take-home pay, or get penalised at extortionate interest rate if the scheme pays. I am not surprised that many just stop working.

It's true those are failings with the scheme rather than pensions generally. With DC pensions and a sympathetic employer who is prepared to e.g. pay more in salary and less into pensions you can plan a lot more effectively.

However I do think that high taper rates are a big disincentive for very high earners. They may easily decide to work less, or just retire. In both cases, the country would get a lot less tax overall compared to the £27K saving you mention. This is particularly a problem because many people on such salaries are in their 50s.

To put it another way: you can only contribute employment income to pensions, not investment income, as far as I know (beyond small limits).

Being able to shovel away £60K a year into a pension (particularly if it's free of IHT, so can be passed on to your children) would be a big incentive for high earners on DC schemes to keep working a few years longer. The overall tax take would be higher over the extra years worked even after the £27K bung.

@debbidoodah Fair enough.

They’ll be banking on the fact that many people prefer the flexibility of retirement provision outside of the tax wrapper of a pension and will continue working anyway. I know many many people, affected by the taper, in their 40s/50s, that keep working. But they’re also affected by the LTA. They’re not however in defined benefit schemes,and have worked this way since the taper was introduced. So the Government get the tax take without having to use the tax from those on lower incomes to subside people like me who are, at the end of the day, very well paid. Doctors are probably in the minority when it comes to the numbers of people actually affected by the taper though.

But this isn't a benefit for just doctors, is it? And what's being suggested here is that the situation for doctors is being worsened by peculiarities of their pension scheme. So to get round the peculiarities of the NHS pension scheme, we're going to be bunging money at a whole lot of people in the top 10% of earnings. Is this the best way to use the money? What other items which could benefit the country aren't being done as a result?

It's because you don't understand how AA affects the NHS pension scheme.

AA in public sector schemes can result in some people paying half of their annual take-home in tax.

@Tryingtokeepgoing The other problem with the taper is that it catches out people who only earn very high incomes for 2-3 years. These people cannot make significant pension contributions in the years where they can most afford to.

Of course, for those consistently earning more than £312K per year for 30 years of their working life, this would indeed be a massive huge giveaway without additional changes. It's why I would change the lifetime allowance to be bases on contributions rather than pension value (at a lower level perhaps).

Thanks, but I fully understand how it impacts all pension schemes; the impact is on all defined benefit schemes, not just public sector ones!

The taper currently applies to everyone with an adjusted income > £240,000. Forgive me, but as someone affected by it I am happy to pay the appropriate tax, and save from post tax income. I don’t expect the tax payer to subsidy what will already be a comfortable retirement. I don’t suppose many doctors are actually affected by the taper, but are deliberately conflating annual allowance, lifetime allowance and the taper.

The bigger impact for some public sector workers (as they are the ones with DB schemes on the whole) is the annual allowance. But again it’s hard to for the general public to have much sympathy for someone paying more tax because the assumed value of the fund required to pay their pension has gone up by > £40,000 in one year. Doctors are of course at liberty to take a harder line, but can’t then be surprised when the rest of us don’t want to pay even more tax to support the NHS.

The NHS needs a more flexible scheme - my employer, knowing the taper means that their contribution to my pension (10% not the >20% for a DB scheme) would breach the tapered AA, just pay it to me in salary instead. Sure, I’m taxed on it. But I can then invest from post tax income. Yes, it’s outside the IHT shield of my pension, but again, I’ve hit the LTA (unless it’s increased) and I’ll be dead and the tax won’t be my problem anyway. I’m sure the government will use it wisely.

We all want better public services - I’m putting my money where my mouth is and willingly paying the tax. Of course I’d rather not, but that’s not how society works. If those public sector employees on 6 figure salaries won’t contribute, then what hope is there for society? You can’t have different rules for public sector and private sector employees - it’s untenable.

@Tryingtokeepgoing why should higher earners be unable to pay into their pension on the same basis as others? What's the rationale when high earners already pay staggering tax.

It is making me want to leave the U.K. tbh as it really feels like you work 60hr+ weeks, albeit earn a high salary but don't have much to show for it after the tax on tax on tax that we have on this country and loss of pension relief

You need to do the maths.

A GP with a salary increase from 50k to 55k in one year could end up with a tax bill of 22k.

That can't be right.

I'm not asking to pay less tax, just not to have ridiculous cliff edges that I can't avoid any other way t by an halving the amount of work I do.

Nobody wants to pay less tax, everyone thinks "the rich" (ie anyone with more money than me) should pay more tax but not me otherwise it's not even worth going to work.

That should say "nobody wants to pay more tax".

YANBU

Following this thread with interest

The calculations used to test DB pensions against the LTA are not fit for purpose and overhauling this would go a long way to solving the issues you've outlined.