A freedom of information request from Quilter shows that around 25% of judges breached the annual allowance on pension contributions in 2017/2018. According to judiciary statistics for 2018 there were a total of 2,978 judges appointed in the UK and Quilter’s FOI shows 764 Judicial Pension 2015 Scheme members* breached the annual allowance in the 2017/18 tax year.
In April last year, lord chief justice, Lord Burnett of Maldon made a statement before a Lords select committee citing pensions and increasingly heavy workloads as problems threatening judicial recruitment resulting in extra strain on the justice and court system. In June this year, Secretary of State for Justice David Gauke also stated that around 10% of High Court judicial positions remain unfilled and cited pensions as a contributing factor.
Other key public services professionals have also cited pensions as a factor exacerbating staffing pressures. The British Medical Association has urged the government to review its pension annual allowance taper, which is encouraging senior clinicians into early retirement. In June the NHS announced plans to consult on a proposed remedy to the situation.
The annual allowance affects individuals saving into a pension and restricts the amount they can save tax free in any given year. The annual limit was in excess of £250,000 as recently as 2010/11. But it has since been cut dramatically and now stands at just £40,000. A tax charge is applied at their marginal rate of income tax on any pension contributions over the annual allowance.
For higher earners an additional ‘taper’ brings the allowance down further. Introduced in 2016, the policy sees savers lose £1 from the annual allowance for every £2 of remuneration over £150,000. It reduces down to just £10,000 for individuals with total earnings of £210,000 or more.
Certain Public sector workers in defined benefit (DB) pensions are particularly vulnerable. This is due to the way benefits accrued under a DB pension are calculated, and means a worker can easily see their pension accrual docked under an annual allowance tax charge.
Further to this the scheme gives members a chance to apply for a ‘scheme pays’ option. However, currently just 4% of members opted for it potentially showing that it offers little protection against members hit by a tax charge and that more needs to be done to promote it.
||Number of JPS members who exceed the annual allowance
||Number of schemes pays applications
||Number of schmes pays applications accepted
Quilter pensions expert Ian Browne says:
“There has recently been a huge outcry from the medical profession as rafts of people have breached the annual allowance and are subsequently forced into a tax penalty. The result is doctors are choosing not to do overtime, putting strain on an already creaking NHS.
“However, our data shows other essential public sector workers such as judges are also starting to suffer with the unintended consequences of an intricately layered tax system in need of simplification. The knock on effect of this is that public sector workers are disincentivised to join these types of roles or increase their hours putting these systems under immense pressure.
“Anyone that may be affected by an annual allowance charge should think about seeing a financial adviser. They can help ensure you are making the most of your tax allowances and could save you huge sums.”