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Hammond defends ‘necessary’ tapered annual allowance

Spring Statement Philip HammondChancellor Philip Hammond has ruled out scrapping the tapered annual allowance and argues it is “necessary to deliver a fair system and protect the public finances.”

MPs questioned Hammond in parliament today about senior NHS clinicians’ tax implications from the tapered annual allowance and annual allowance.

They pointed out both allowances are forcing senior NHS doctors to retire early or do less work and the government should step into correct this problem.

Earlier in May former pensions minister Steve Webb called for the Treasury to abolish the tapered annual allowance as quickly as possible to tackle the NHS pensions crisis.

Webb argued it is “utterly absurd” doctors might not work extra shifts due to pension tax concerns.

The British Medical Association has also written to Hammond that doctors will start to reduce their working hours unless reforms are made to the NHS Pension Scheme.

But Hammond defended the current pensions tax system and pointed out it is broadly fair as allowance breaches only effect the highest earners.

He said: “The NHS Pension Scheme and other public sector pension schemes are among the most generous pension schemes in the country today. The tapered annual allowance is focused on the highest earning pension savers to ensure they do not receive disproportionate tax relief.

“I do accept there is some evidence the annual allowance charge is having an effect on retaining high-earning clinicians in the NHS. I am in discussions with the health secretary about how to provide additional flexibility for NHS doctors affected by the annual allowance tax charge and he will make announcement as soon as possible.”

Hammond added: “In the last two parliaments the overall reforms to pension allowances included the taper annual allowance which are necessary to deliver a fair system protect and protect the public finances. These are expected to deliver £6bn in revenue a year.”

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Comments

There are 14 comments at the moment, we would love to hear your opinion too.

  1. David Bashforth 21st May 2019 at 3:45 pm

    He’s clearly never tried to research his own rule and apply it, in advance of actually knowing your earnings. As a Chartered Fellow of the PFS, it took me a full day of wading through Guidance from the NHS pension scheme to get a handle on how this might work. There is no way a layperson, even of the obviously high intelligence level of senior clinicians, could sufficiently understand this rule and there options. As evidenced by the amount of members having unexpected, unplanned for tax demands landing on their doormats. This piece of legislation can only be rivalled by the anti forestalling horrendousness of a few years ago.

    • Duncan Gafney 22nd May 2019 at 9:31 am

      David, as someone who specialises in training NHS staff and chartered advisers on the NHS pension and all it’s subtleties and complexities, I can quite safely say this.

      Understanding the basic aspects of the different versions of NHS pensions in 1 day is reasonable, however understanding all the subtle nuances and things that have major effects takes a lot more than a day.

      There are lots of things even NHS pensions don’t understand, aren’t aware of, or never considered. I would be very wary of giving advice even if you’ve spent a day studying it.

      Very few people even in NHS pensions truly understand the schemes and the implications of doing certain things for staff.

  2. Dominic Thomas 21st May 2019 at 4:09 pm

    The Chancellor simply does not know what he is talking about, utterly inept

  3. You would be forgiven for thinking this was from a hard left labour chancellor. How times change.

  4. Ostrich syndrome.

    He’ll change his mind when the waiting times become intolerable. Mind you, I doubt he’ll be Chancellor for very much longer.

  5. David Bashforth 21st May 2019 at 10:15 pm

    I should qualify that it isn’t the taper alone that makes it complex, though it’s complicated enough, it’s the carry forward, LTA and scheme pays rules and requirements that make it impenetrable to the mere mortal.

  6. Julian Stevens 22nd May 2019 at 9:00 am

    I’m pretty sure he didn’t say “a fair system protect and protect the public finances”.

    That aside, ANY chancellor of ANY political persuasion (particularly a socialist) can argue that increasing ANY tax is fair in that it helps protect the public finances. By that line of reasoning, any chancellor could raise VAT to 25% or the top rate of income tax to 60% or CGT to 30% and claim that such measures are “fair” ways of protecting the public finances. Is a measure that deters senior clinicians from working additional hours or retiring early “fair” on NHS patients who suffer as a result? I hardly think so.

  7. Trevor Harrington 22nd May 2019 at 9:30 am

    Fair or unfair ?

    Is it fair that a public sector employee, who incidentally has no profit motivation or commercial risk to his/her employment, is it fair that as higher rate tax payers they receive a 67% uplift to their pension contributions, which they can indeed afford, whereas basic rate taxpayers only receive a 25% uplift to their contributions, which they probably cannot afford ?

    The feeding frenzy amongst the high salary establishment of the last 30 / 40 years has got to be addressed, simply because we cannot afford it.

    When State Pension benefits have been massively reduced and state retirement ages extended, as a direct and specific result of the hugely disproportionate sums being spent on public sector pensions, then quite frankly it is absolutely correct that we should be looking much closer at the costs that are involved.

    The Chancellor must go further with curtailing these costs and benefits.

  8. More flexibility? That suggests the tax will remain payable but he is looking for different ways for it to be assessed and paid. This will unravel. If he believes senior NHS clinicians are indeed a special case, then he should simply exempt them from the taper. Simple as that. Then deal with the wave of other public servants who want to be treated the same.

  9. Duncan Gafney 22nd May 2019 at 9:36 am

    The Tapered AA is fundamentally unfair. If you wanted to actually be fair between the public sector and private sector, you would do two things Phil.

    1.) You would review the valuations rules for the purposes of the AA and LTA for DB schemes to reduce the disparity between them and DC.
    2.) You would abolish the AA taper.

    That would then make the playing field far more level. It would also solve the problems associated with the tapering, and would keep ensuring that people did not benefit excessively from pension tax relief or be able to accrue vast pensions just as tax efficiently as those with small pensions.

    But then again Phil, youve proven on many occasions that you simply have not a clue what you are doing and are far more interested in persuing your own political agenda than actually managing the countries finances properly.

  10. He is the most left wing Conservative chancellor that I have known and that, along with minimum knowledge he possesses is very scary

  11. Andrew Cartlidge 23rd May 2019 at 3:54 pm

    The pension and taxation systems are unfit for purpose, because they are so complex. There must be better methods of ensuring the public purse is adequately funded than to impose layer upon layer of complex taxation/pension legislation. Widespread simplification would reduce avoidance and the costs of collection, increase revenues and lead to greater coherence in the taxation burden. Hammond has done nothing to simplify the system – but I have no sympathy with the idea that a particular group of professionals should gain from more advantageous treatment than the rest of society.

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