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Press comment: Bespoke NHS pensions solution ignores high earning public sector workers

07/08/2019

If you are covering the news that the government is to launch a consultation into the tapered annual allowance pension issues affecting NHS doctors, please see the following commentary from Ian Browne, pensions expert at Quilter:

Ian BrowneQuilter 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.

For more information contact

Gregor Davidson020 7002 716407917 522784gregor.davidson@quilter.com
Michael Glenister020 7778 963807469 144535michael.glenister@quilterinvestors.com
Kathleen Gallagher023 8072 629307990 004932kathleen.gallagher@quilter.com

Notes to Editors:

About Quilter plc:

Quilter plc is a leading wealth management business in the UK and internationally, helping to create prosperity for the generations of today and tomorrow.

Quilter plc oversees £118.4 billion in investments (as at 30 June 2019).

It has an adviser and customer offering spanning: financial advice; investment platforms; multi-asset investment solutions; and discretionary fund management.

The business is comprised of two segments: Advice and Wealth Management and Wealth Platforms.

Advice and Wealth Management encompasses the financial advice business, Quilter Financial Planning; the discretionary fund management business, Quilter Cheviot; and Quilter Investors, the Multi-asset investment solutions business.

Wealth Platforms includes Old Mutual Wealth UK platform; Old Mutual International, including AAM Advisory in Singapore; and the Old Mutual Wealth Heritage life assurance business.

The Quilter plc businesses are being re-branded as follows: 

  • Quilter Financial Planning (previously Intrinsic)
  • Quilter Private Client Advisers (previously Old Mutual Wealth Private Client Advisers)
  • Charles Derby Group (becoming Quilter Financial Advisers)
  • Quilter Financial Adviser School
  • Quilter Cheviot
  • Quilter Investors
  • Old Mutual Wealth (becoming Quilter Wealth Solutions in 2020)
  • Old Mutual International (becoming Quilter International in 2020)

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This communication is issued by Quilter plc.  Registered office: Millennium Bridge House, 2 Lambeth Hill, London EC4V 4AJ, United Kingdom. Registered number: 6404270.  Registered in England.