Quilter is backing the calls for a parliamentary debate on the future of the tapered annual allowance, after the government today announced plans to publish a consultation on the issue affecting swathes of NHS doctors.
Senior figures across Quilter’s pensions and financial planning business have also signed up to a UK Government petition calling for the reversal of the controversial pension policy.
The newly launched petition, which has already attracted more than 16,000 signatures, demands that the government scrap the taper to avert the ‘catastrophic effect on retention’ of public sector staff.
Ian Browne, pensions expert at Quilter, says:“The pensions sector has long been complaining about the punitive and unpredictable nature of the annual allowance taper, but it has taken a crisis in the NHS for the government to finally consider how to address it.
“Today’s solution giving doctors greater control over pension contributions is an improvement on the 50/50 proposal under May’s government. However a bespoke solution for doctors ignores large swathes of high earning public sector workers who provide critical services everyday such as judges, teachers and transport workers.
“The chancellor has committed to reviewing the salary threshold at which the taper impacts people, but the government should go much further.
“The principle of the taper, which discourages long-term saving, has always been questionable. It breaks the foundations of the retirement savings system, by taking away the level playing field that entitles everyone to the same right to tax relief at their marginal rate and a universal annual threshold on contributions.
“As time has gone on and the carry-forward opportunities have been used up by savers that have planned ahead, the policy has led to recruitment pressures in key public services. This surely cannot have been the intended outcome and shows a failing from policymakers to appreciate the knock-on consequences of this short-sighted tax grab.
“The noble thing to do would be to accept the taper is not fit for purpose and reverse it. The horse has already bolted but it is time for the new chancellor to do the sensible things before it gallops off into the distance.”
Introduced from April 2016, the policy reduces the annual allowance for pension savers with higher earnings, breaking the principal that all pension savers are entitled to relief at their marginal rate of income tax up to the same threshold allowance.
Instead, it penalises higher earners by curbing their entitlement to tax relief on contributions. Individuals with an ‘adjusted income’ of over £150,000 and a ‘threshold income’ over £110,000 are affected.
For every £1 of ‘adjusted income’ over £150,000 an individual loses 50p of their annual allowance. This tapering effect means someone with income of £210,000 is left with an annual allowance of just £10,000, a 75% reduction on the standard £40,000 annual allowance.
The controversial policy has resulted in dire unintended consequences for key frontline workers in public services, especially the NHS. The taper is particularly damaging for workers in public sector DB schemes because of the way their pension accruals are calculated.
A recent survey showed that nearly half of GPs had cut their hours to avoid triggering a punitive tax charge, while NHS trusts have reported delays to procedures because of staff shortages as a result of clinicians rejecting overtime.
Quilter has repeatedly campaigned against the policy, introducing a calculator to help savers navigate the tapered allowance, and calling on the newly appointed chancellor, Sajid Javid, to make reversing the policy one of his key priorities.
Data sourced by Quilter from the Ministry of Justice shows that the issue is not confined to the NHS, with 25% of judges now breaching the annual allowance in another key public service profession suffering recruitment pressures.