Consultations on clinicians pensions are queuing up like ambulances outside AE. The last consultation was launched on July 22nd and has barely been read before being superseded by a new one to be launched “over the summer” which will go some way to #scrapthetaper for high earning public servants taxed at punitive marginal rates for being in their pension schemes. The vast majority of the people affected will be in the NHS.
The problem has been known about ever since people started modelling the impact of the 2016 pension tax changes , it has been laid out on this blog by Doctors impacted and campaigned against by the pension ministers under whom the rules were implemented.
Your boss asks you to do overtime, you agree to help out, then he comes along 2 years later and says doing that overtime means you owe him £80,000. You don’t have the money. He says you can borrow at 6%interest. How’d you feel abt your employer? #NHSpensions This is what happened
— Ros Altmann (@rosaltmann) August 5, 2019
But is this scrapping the taper?
The Government cannot scrap the pensions taper for the NHS and not do so for the private sector – as Tom Mcphail points out.
I’m all in favour of scrapping the Annual Allowance Taper but not if it is just for one group of workers (eg NHS employees); especially if they are already benefitting from generous DB LTA calculation. HMT needs radical review of whole pension tax architecture
— Tom McPhail (@PensionsMonkey) August 6, 2019
Again, the argument for not scrapping the taper has been well rehearsed on this blog.
And the Government does not seem to be interested in a general solution, why should it, the vast majority of highly paid people impacted by the taper are already receiving payments in lieu of pensions. Ask any reward specialist and they’ll tell you that pension compensation for top earners can be larger than pension payment.
All that is happening in the new proposals – appears to be the Government allowing the NHS to come in line with the private sector. I quote from the BBC report (which appears to be informed by a Treasury Source).
The government said it would now be putting forward a plan to allow doctors complete flexibility when it comes to scaling down their pension contributions to avoid breaching the annual tax-free allowance……
now ministers have said they will publish a consultation in the coming weeks which favours giving public sector staff the ability to reduce contributions to zero.
It will also allow doctors to be given the contributions the employer would have made, meaning their pay packets could be boosted by thousands of pounds a year
All this is – is an extension of 50:50, where Doctors were half in and half out of the scheme to something that looks like 0:100, with an emergency opt-out thrown in.
…to help relieve the problems immediately, the government is also promising to allow doctors to opt out from the pension scheme for this financial year.
While the concessions are specific to the NHS, there is a promise to sooth the savaged brow of Sir Humphrey and other civil servants whose standard of living might be compromised by their gold plated pension promises.
…the Treasury has agreed to look at how public sector workers are taxed on their pensions to see if the rules can be relaxed.
This is not the start of a radical review of the whole pension architecture – (with all the benefits to the private sector pension infrastructure that would bring) , it is simply a politically expedient move that can trump the July 22nd consultation – because Javid trumps Hammond
Sajid Javid, the chancellor, said the government was committed to ensuring Britons saw a real difference in public services, “including getting quicker GP appointments and a reduction in waiting times”. – Jo Cumbo in the FT
and Boris trumps everyone – even if he doesn’t know his AA from his LTA.
Tom – the Conservative Conference is only a month away, good luck lobbying for fiscal sanity for pensions!
Clinicians first – porters last?
This U-turn does at least show that when HMT feels under pressure, it can be agile and effective. If the BBC and FT are to be believed, the Doctor’s dilemma could be over by the end of this fiscal year.
Not so the low paid, millions of whom have been taken out of taxation only to be deprived their promised pension tax incentives. New work by the IFS shows
Record numbers of adults are paying no income tax, an analysis by the Institute of Fiscal Studies has shown https://t.co/caFqWS6VcU
— The Telegraph (@Telegraph) August 6, 2019
The chancellor giveth and the chancellor taketh away
All the hospital porters, part-time nurses ,caterers and other orderlies whose NHS earnings don’t get taxed – may feel lucky – they are not. They have been hit in the years of austerity by layer upon layer of indirect taxation, from VAT to the loss of promised pension contributions.
The Government is no longer subsidising 25% of the low-paid’s pension contributions ,even if they are in a pension because they have been auto-enrolled. Government pensions- including the NHS – are impacted by the net pay anomaly because Government pensions – including the NHS do not give pension savers relief at source.
Clinicians are to be compensated for the impact of the AA taper, but porters will get no compensation for the loss of their promised savings incentive.
Ironically , highly paid doctors can still bet the incentives for their children by paying into their tax-advantaged pension pots while the people who deliver their patients to them have had this benefit taken away.
A local solution – not a pension reform
Steve Webb may like to see this as a “big step towards scrapping the taper” but it isn’t. It’s just another way of cutting the clinician’s cake. It will cost the NHS more and I suspect be broadly neutral in terms of the tax-take, overall it is turning a buggers mess into a politically acceptable compromise that simply adds to the complexity of public service pension rules.
This is hardly a grounds for celebration, nor is it a chink of light for high-earners in the private sector – who are sorely deprived in their capacity to fund their SIPPs and ISAs.
It is simply a way of turning down the heat on a pot of boiling water.
Meanwhile , the people who are at the bottom of the politicians pecking order, the low-paid – are yet again ignored. Pension reform focusses on everyone, this consultation -welcome as it is – focusses on those who earn most.