“When it comes to policy changes one of the biggest problems we face is knee jerk decisions to fix an issue, and what’s even worse is a slow motion knee jerk. A report from the Association of Consulting Actuaries flags the need for a collaborative review of pension taxation, something echoed by The Fabian Society and Bright Blue who are calling for a new cross-party pension commission. This seems like common sense, but apparently it is something that still needs to be said. As we edge towards the March budget rumours are already circulating about reforms to pension taxation and the most recent ones say Government are considering upping the threshold income for when someone has to pay the annual allowance from those earning more than £110,00 to £150,000.
“While this would numb the problem currently crippling the NHS pension scheme, which has garnered strong media attention, ultimately the system is still flawed. It does not cure the problem plaguing the NHS and other high earning professions. The pension taxation system is unnecessarily complicated and broken. More tinkering will make that worse.
“Policy makers shouldn’t be naïve. While the taper was one of the original issues for the NHS pension scheme, the resultant scrutiny of how the NHS Pension and Annual Allowance works has definitely opened the eyes of some doctors. They are now aware of flaws in the system such as overly complex calculations, paying taxes on pension benefits that never manifest, negative pension input amounts that get zeroed in HMRC’s favour, interest from HMRC on ‘late’ tax payments caused by the scheme not providing the right information at the right time.
“The pension taxation system needs a wholesale independent review.”