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Editor’s note: Public sector pensions aren’t as perfect as you think

If you lived outside of our lovely financial planning bubble, the words “I’m saving too much into my pension” wouldn’t sound like a problem at all.

The person you were complaining to would probably respond with something along the lines of “oh no, you’ve got too good a job, have earned too much money and are doing too well with your finances. Such a shame”.

But try using that sarcasm on a financial planner that has had to guide a public sector worker through the maze of pensions allowance traps and you would be shot down in a flash. Because the fact is there are an increasing number of doctors, teachers, police officers and other civil servants that are breaching a whole host of pension tax limits, and have no idea what to do about it – or even that they have breached them in some cases.

With the annual allowance, lifetime allowance, and money purchase annual allowance all ticking down in recent years, middle earners are being caught.

Advisers that have worked with these individuals as clients know that paying any type of allowance breach can be more complex in public sector schemes, and calculations for both tax and cashflow planning can be more difficult than those with private pensions under their belt.

With different arms of the government as your employer, if you do incur a tax charge, does the scheme pay, or is there a mechanism for payment from the individual? Scheme rules are different, as are the personal circumstances of each employee.

While changing some government schemes to career average instead of final salary has reduced entitlement, that still hasn’t saved experienced NHS workers in particular from unexpected letters from the taxman.

That health secretary Matt Hancock reportedly met with the Treasury earlier this year to try to secure a potential exemption for doctors around the lifetime allowance to improve retention rates shows just how political the situation has become.

The wider debates around pension tax relief and the triple lock have been intense. The importance of maintaining both as vote winners has forced the government to fiddle with allowances; they simply aren’t left with other options for raising revenue from the pension system.

But even when legislation doesn’t change, the mood music is different with each and every Budget, and is always unpredictable. That affects the IFA community and its clients.

All the tinkering has made it harder for advisers to pick the right path for public sector clients. It just re-emphasises the value of looking at needs and objectives holistically to navigate the ever-changing seas of public sector pension planning.

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