There is an opportunity to abolish the tapered annual allowance and reform pensions tax relief more widely under Boris Johnson’s incoming government, experts say.
The MP for Uxbridge and South Ruislip was elected leader of the Conservative party today and will take over as prime minister tomorrow.
Johnson beat off challenger and foreign secretary Jeremy Hunt by winning 66 per cent or 92,153 votes from Tory party members.
There has been commentary about what financial advisers and investors can expect from Johnson’s administration.
Yesterday the government published a consultation where it said high earning doctors should be able to reduce their pension contributions to avoid being penalised by the tapered annual allowance.
The Department of Health and Social Care suggests a ‘50/50’ proposal where members could reduce the amount of pension they build up alongside the amount paid.
Health professionals in the NHS have complained about being hit by higher allowance charges and the British Medical Association has written to the government repeatedly about the issue.
But experts say the recommendations in the paper do not address the wider problems high earners face from the tapered annual allowance.
They argue the new government could use the consultation as a launch pad to review pensions tax more deeply.
AJ Bell senior analyst Tom Selby says: “Johnson has promised to ‘fix’ the pension tax crisis currently engulfing the NHS. This complex fudge is unlikely to appease those affected, however, and while Johnson has not said how he will ‘fix’ the problem, scrapping the taper altogether would be the obvious solution.
“This could then be used as a starting point for a broader review of the pension tax regime, with a central aim of simplification and increasing the number of people saving for retirement.
“If Johnson does ditch the taper, however, he would blow a £1bn hole in the Treasury’s coffers which would need to be plugged.”
Chancellor Philip Hammond previously announced he would resign if Johnson becomes prime minister.
Barnett Waddingham senior consultant Malcolm McLean says the new chancellor should urgently review the whole system of pension tax reliefs.
He points out the annual allowance taper is now having an adverse effect on other highly paid key workers, such as air traffic controllers, for who flexible working patters and extra hours are an integral part of their jobs.
He says: “In my view it is not in the public interest for this situation to continue any longer than absolutely necessary. The annual allowance taper should be scrapped and replaced with a slightly reduced annual allowance for all, say down from £40,000 to £35,000 per annum.
“The likely imminent arrival of a new chancellor of the exchequer should also be the catalyst for an urgent review of the whole system of pension tax reliefs and allowances, which as they stand now are not working well, are too complicated and are widely misunderstood and misapplied.
“If ever there was an area of pensions law ripe for change, this is it.”