“A local solution – not a pension reform” the new NHS pension consultation.

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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 The last consultation was launched on July  22nd and has barely been read before being superseded by a new one to be launched “over the summer” which will go some way to #scrapthetaper for high earning public servants taxed at punitive marginal rates for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.

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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.

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

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.

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About henry tapper

Founder of the Pension PlayPen, Director of First Actuarial, partner of Stella, father of Olly . I am the Pension Plowman
This entry was posted in NHS, pensions, Treasury. Bookmark the permalink.

11 Responses to “A local solution – not a pension reform” the new NHS pension consultation.

  1. Eugen N says:

    Your comment about NHS porters.

    I do not think it is correct. As long as you are in a DB scheme like NHS, it does not matter. The pension outcome is done by the formula, not bu how much funds you have invested or got tax relief on.

    Added to that, contributions are a lot lower in percentages at the lower end of basic salary:

    Up to £15,431.99, employee contributions are 5%

    £15,432.00 to £21,477.99, employee contributions are 5.6%,

    ………..

    £111,377.00 and over, employee contributions are 14.5%.

    I would think the NHS pension ends up as a better outcome than many people on DC schemes on the same salary.

    • Bryn Davies says:

      Yes, the net pay anomaly is only a problem for people in DC schemes. But many of the people that Henry is concerned about will be employed not by the NHS but by contractors and likely to be entitled only to an AE scheme. Henry’s main point stands.

      • Dennis Leech says:

        Bryn Why is that? What difference does it make whether DB or DC? The issue is about contributions not benefits.

      • henry tapper says:

        The net pay anomaly impacts low earners in contributory DB schemes as well. They are effectively contributing 25% more than those getting tax-relief but getting the same pro-rated benefit. There is nothing progressive about this – most low-earners in DB have been auto-enrolled into public sector plans. The cost of contributions is a major contributor to the high opt-out rate in the NHS scheme (much greater than the AA taper). But while the rich have resources to fall back on , the poor have only the State. If that’s justice- I’m Boris Johnson

      • Bryn Davies says:

        Apologies. I’m wrong and Henry is right. My problem was that I simply couldn’t imagine a DB scheme adopting relief at source in practice, so the issue wouldn’t arise.

    • henry tapper says:

      See my comments below Eugen, the cost of purchasing a year’s pension accrual is 25% higher for the non-tax-payer than for the basic rate tax-payer. What is fair about that?

  2. John Mather says:

    Why is Boris not concerned by his own position on taper? Surely with his basic salary as PM and his larger earnings as a “Journalists” he would be taxed significantly especially as his benefits have recently been uplifted. Does anyone have knowledge how those created more equal manage this farmyard trick?

  3. Bob Ward says:

    The calls for a review of NHS pensions is a smoke screen – this is NOT a pensions issue it has always been a TAX issue.

    Ever since when Gordon Brown was Chancellor and he introduced the 10% stealth tax on dividend income to pension funds, subsequent Chancellors have seen pensions as a target for instant revenue with the long term affects hidden.

    George Osborne didn’t introduce the Pension Freedoms for the good of the pension savers who anted more flexibility, he did it because he created an immediate tax ‘Windfall’ of over £13bn by taxing the withdrawals up-front instead of having to wait umpteen years for the drip feed of income tax on the pension payments. HMRC had deliberately designed and implemented a method of grabbing overpayments of tax and then pensioners have to ask for a refund – this has not been explained enough to those who have drawn from their funds.

    He also meddled with the auto enrolment thresholds without due diligence of investigating the affect when he split the trigger point from the lower earnings allowance. Everyone in the pensions arena saw this immediately as a problem but he and HMRC since have done nothing since to correct his mistake.

    It still continues, with the immediate past Chancellor, Philip Hammond continuing to widen the gap and cause more hardship to lower earners by refusing to put right the inequality of tax concessions / relief to those who need it most. Then he has the gaul to admit he only introduces the strategy and doesn’t understand the nuts and bolts of pensions! That’s not good enough. There are plenty of advisers to the Government who are failing in their duty to highlight these inequalities. It’s alright for them in their gold plated final salary schemes and they couldn’t care less for those at the bottom end of the spectrum. HMRC say it’s not economic to amend the relief at source system, what a cop-out and very convenient for them to hang onto another pot of revenue – silly on their own side I call it.

    So stop fiddling with pension laws and rules of individual schemes, sort out the real problem – TAX allowances which should be AVAILABLE TO ALL and not just those who have extra income and can already better afford to save for retirement

  4. Terence O’Halloran says:

    I could not have stated the blindingly obvious any better. Get it sorted. It is basic arithmetic.

  5. Ros Altmann says:

    Well said Henry, great blog! Ros

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