Dr Kate Lovett can’t afford her pension.

kate lovett.jpeg

A psychiatric consultant finds herself paying more in tax than she earns. A spokesperson for the pensions industry opines.

Dr Kate Lovett had introduced herself to the world of pension experts very precisely

A consultant psychiatrist , she had failed to take an advanced course in pensions taxation

and this was how she felt about it.

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It’s a sad state of affairs which quickly caught the interest of the press

Day three didn’t work out too well either

Why has this happened?

As John Ralfe rightly points out, Dr Lovett is being penalised for accruing too much pension in a single year. But the intention of the Annual Allowance was never to penalise people like her.

Her situation is the unintended consequence of a sticking plaster applied by a Government that had failed in its attempt to radically reform pension tax relief.

And with a cruel circularity, BREXIT – the reason the Osborne/Cameron Government shelved the taxation consultation of 2015 is also the reason we won’t get a budget in 2019. Five years of fiscal paralysis at the Treasury, five years where the sticking plaster has worn off to reveal the open wounds of a tax system that doesn’t work.

How should we react?

The stern response from John Ralfe is not the right response, it lacks emotional intelligence and humanity. You do not tell a patient that his or her ailment was avoidable as they sit in casualty. Instead you give consolation and the promise of attention, immediate attention.

The failure of the coalition Government to implement a lasting reform to pensions taxation is almost as heinous a policy failure as its failure to implement pension freedoms without a safety net.

We pensions people should react with outrage that tax scandals as wide ranging as those affecting high earners and those who pay no tax at all are unaddressed for so long.

I started writing about the net pay scandal five years ago when Kate Upcraft pointed out that holding down the AE earnings threshold and raising the income tax threshold would lead to problems for net-pay pension schemes.

I started writing about the AA taper when certain doctors at the start of this year brought to our attention the impact on the NHS from doctors cutting their overtime to avoid double taxation.

But the blogs I wrote four and five years ago about the fundamental unfairness of pension taxation go the heart of the matter. Until we find a fairer way to distribute the forty billion pounds we give back to pension savers through tax relief and incentives  sticking plaster solutions will stay in place.

We should react with resolution not complacency. Pension taxation creates gross inequalities that are embedded in the EET system. A transition to TEE is to be hoped for and could be accomplished over time using the scheme pays apparatus. We know the Treasury has done its sums and has a plan. It sits on a shelf but could be taken down, dusted off and implemented as it should have been in 2016.

Once we’ve got this Brexit thing out of the way, we need to get back to basics – because we can’t have doctors like Kate Lovett , treated like this, nor can we have 1.7m low-earners treated just as badly. We need to get back to the pre-Brexit pension taxation consultation and complete the work that had been started. This needs to happen in 2020.

About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
This entry was posted in NHS, Pension Freedoms, pensions and tagged , , , . Bookmark the permalink.

9 Responses to Dr Kate Lovett can’t afford her pension.

  1. John Mather says:

    Is Boris subject to the same rules? Could someone explain why not

    • Phil Castle says:

      He’s only been Prime Minister for a matter of months. This isn’t because of Boris (alone) it is because of politicians of all parties playing politics and parties rather than serving the electorate and doing what is right for the country.

  2. Jnamdoc says:

    A bit harsh on JR, Henry? Perhaps JR’s humanity was understanding that the very valuable pension benefit is paid for by the rest of the less well remunerated hard working families. The value the Dr is taxed on is likely less than half the actual market value of the benefit!? And any argument that starts with ‘I am a doctor’ ‘ I work hard’, is going to be short on facts.

  3. Eugen N. says:

    What would be the solution then? To let people accrue very high DB pensions with no tax charge? Can the taxpayer afford that?

    The ‘scheme pay’ offers a good solution, but there is interest rolled up, which will reduce the pension paid on retirement.

    • henry tapper says:

      The long term solution is to unwind the EET system and replace it with TEE (we can use scheme pays to manage the transition). I know this is one of the models that HMT has looked at. They reject it for the uproar it would create . TEE is more transparent and better suited to a system where nearly everyone is in.

    • alan chaplin says:

      One way would be to cap tax free cash. The rest is taxed at marginal rate and gov of the day sets that at whatever their needs/ideology dictate…

  4. Mark says:

    TEE is a non-starter. Why would I believe that the government will honour the promise to not tax me in 30 years when my pension scheme has already been changed twice since I joined 15 years ago?

    • alan chaplin says:

      Yom may well not believe government, but what is alternative? Not saving for retirement because you might not like future tax rules?

  5. julierichardswbacom says:

    At the risk of upsetting some people, is this issue woith an NHS consultant also about the NHS not choosing/be allowed to adapt to the post AA era by being more creative in its reward structures? so many of us in the private sector have embraced the salary supplement approach. I am a little jaded by the continuing disparity between public vs private sector.

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