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.

I’ve done that maths thanks. If I had £100k paid into my pension by my employer then I’d be subject to a tax charge of roughly £42k because of the taper and reduced annual allowance. But I’d still have £100k more in my pension to provide for my retirement than I would have done otherwise. If we assume that a £5k salary drives a £5k pension increase (it won’t, because you can’t get to 100% of salary in pension under the NHS scheme) then using HMRC rules that’s a deemed £100k increase in notional fund value. That’s £60k more than the AA. Never mind that in the private sector it’d cost you nearer £200k to get £5k of index linked pension. A 45% tax payer will pay £27k in tax on £60k. But £27k for an index linked £5k uplift in pension from life is a bargain!

As it happens I don’t have an employer that generous, and so they’re only ever going to pay somewhat less than half of that in. But they don’t, because I asked that they pay it to me and I do pay the tax. I then invest the net amount, from post tax income. I’ll say it again, the issue is the lack of flexibility in the NHS pension scheme and how employers deal with the tax rules, not the level of the AA, LTA or taper. All employees should be subject to the same rules. And as it appears that the beneficiaries of these DB schemes don’t realise how valuable they are, and how much the benefit they are accruing would cost to replicate, now would be a good time to change surely?

As someone who would benefit hugely from the removal of the taper and increase in the annual and lifetime allowances, but accepts that public services need to be paid for, I am somewhat surprised that those higher earners in the public sector don’t think that those services should be paid for by actually taxing them…

Well I rationalise it as it being the governments job to encourage and incentivise people to prepare for retirement. But that the level of subsidy for that needs to be capped on cost grounds - and regardless of the tax situation those like us who are well paid will ensure that we do have a comfortable retirement, so the subsidy needs to be aimed at those who would either struggle to or just not bother saving for retirement. Sure it’d be nice if there was no taper, no LTA and no AA. But public services need to be paid for.

Given the taper starts at £240k, at which level assuming no pension contribution your take home would be £11k or £12k, which is hardly ‘nothing to show for it’ level. At the £312k at which the taper completely bites take home is around £15k a month. Before any bonuses, which could be another 25%/50%/100% or more. Don’t tell me you can’t save for retirement from post tax income at that level - you can, and I have. Even with an increased LTA of £1.8m you’ll never have enough in a pension wrapper to replicate a > £100k salary never mind a £240k one, so investing outside of a pension wrapper is essential anyway!

@Tryingtokeepgoing High-paid public sector workers (and private sector workers) have choices though - choices unavailable to lower paid workers.

They don't have to keep working. They can retire early.

You are only looking at the cost side to the exchequer of increasing the LA, increasing the AA, and (theoretically) removing the taper.

You need to look at the benefit side as well from high earners working longer.

Pension allowances are one of the most cited reasons for retiring early. There are others but it is one of the big ones.

There would be a pretty simple way to solve the problem for NHS senior docs, without having to offer more tax relief to all high earners, which is to introduce for NHS workers some of the pension flexibility that many private sector workers enjoy.

Specifically: any NHS employee with pension accruals or pensionable salary greater than some specific figure "X" could be given the option to reduce their contribution and their pension accrual, without having to totally opt-out of their pension. This could be an annual election. So the NHS doc who was going to get hit with a punitive tax for accruing pension benefits with an actuarial value in excess of the annual allowance could instead make an election to contribute a bit less and accrue a lower pension benefit increase in order to "fit" under the allowance. They would then get two immediate cash benefits: higher take home pay (due to lower current year pension contribution) and avoidance of the unfair tax charge for exceeding the annual allowance. In exchange, they would see a lower pension accrual, and they would pay more current income tax (because the current pension contribution is tax-deductible and they would now have less to deduct).

This would remove the unfair tax charge, at least for those who made the optimal choices, and it would also eliminate the massive cashflow mismatch that comes when you have to pay income tax today for an uncertain future benefit that may come far into the future, it at all. It would accomplish this without increasing the present value of government spending in respect of NHS compensation costs.

I genuinely don't mind paying tax, but the level of taxation in the U.K. has got to a pretty ridiculous point where extra hours to earn extra money once you're in the 125k - 200k range makes limited sense!

Very frustrating because actual rich people - the royals and multi millionaires pay so little tax compared to employees in highly stressful jobs with long hours

The NHS pension situation is ridiculously complicated.
I refuse to do any paid extra work in case it results in a massive additional tax bill for money in a theoretical pension pot that I may never receive. Of course I could do 'scheme pays' but that is essentially a 20yr loan at 12% interest and that seems crazy.

I could work extra to help reduce waiting lists but can't due to the pension situation. We can't control how much we put into it.
I do extra work of course, we all do, but ask not to be paid and this further erodes my good will and my eagerness to retire earlier than I would otherwise.
My husband also an nhs consultant will probably leave the nhs soon due to pension issues. That will be 10-15years early. Such a waste to the Nhs.

Unless you're a very high NHS earner additional WLI work or Locums shouldn't really affect you as it should be non-pensionable - it only really becomes an issue if you earn enough to hit the taper limits.

You absolutely shouldn't be doing extra work for free - this is why Doctor's are getting crapped on from a massive height. At the very least get it off as TOIL...

Abolishing LTA is great news.

Totally agree @LargeDeviation it is the taper I wanted changed, as it is fantastic all the allowance increases/removal but am still not sure it will have the desired effect without getting rid of the taper. Those (not me) who can continue to work whilst paying lots of tax past 55 are paying their way for longer… that can’t be a bad thing.

Reduce the tapered rate and those same people will have more ££ to spend in the economy too.

The point I was making was that, in the private sector at least, many people keep working despite the LTA, AA and taper issues. I’m one….and so are most of my peers. That’s partly because having hit the LTA in our 40s we didn’t have sufficient liquidity or capital to fund 15 years of not working, plus the top-up of 30 years of income needed over what a pension could provide. We also quite enjoyed working! Now I only need to fund 5 years and the top-up, which is less of an issue. But I still enjoy working. There’s little benefit from high earners working longer…The tax take would be similar if I worked or didn’t, because someone else would be doing my job if I wasn’t. Retiring early is not a major problem, outside the narrow world of the public sector.

It’s a specific public sector issue where high-ish salaries and very good pension schemes, plus timing of when people hit that level of salary in their career, mean that people can retire at 55 without lowering their lifestyle. Because their lifestyle was only ever predicated on a low 6 figure salary, if that, at late 40s/early 50s.

Now post budget they don’t have to worry, and many people all on high 6 figure salaries are now the best part of £30k a year better off. But outside the public sector they’d have worked anyway, or at least my peers would. Still, the budget has left number of poisoned pills for the incoming government, that’s for sure!

I think pay and especially pensions in the public sector need to be looked at and reduced. It's ridiculous that private sector workers are worked until death while public sector workers get to retire at 50 on a gold-plated pension.

Thank you florenz!

Single parent, nhs consultant here- my take home pay last year was £59103 - good amount of monies - myself and the 2 DCs can live well on that.

then the brown envelope arrived - £32108 pension tax - pay now or else arrived. Suddenly my annual take home pay is £26999 or £2249 per month. No benefits to top etc because my gross is too much

Life is suddenly not so rosy - a tax on a benefit that I have not even seen yet on a possible calculation make no sense.