View more on these topics

Pensions tax relief fight could pit government against unions

A reduction in pension tax relief could bring thousands more public sector workers into the taxman’s net, potentially setting up a showdown with unions, AJ Bell has warned.

With spending pledges for the NHS in mind, commentators have said in recent weeks that one of the most likely courses of action will be for the chancellor to cut the annual allowance at the forthcoming Budget.

Given current accrual rates, public sector workers would need to be earning over 150,000 to be affected by the annual allowance. However, AJ calculates that if it was reduced from £40,000 to the £30,000, those earning £115,000 would be hit.

With a reduction in the annual allowance to £20,000, the salary threshold would fall to £80,000.

AJ Bell senior analyst Tom Selby says: “While very few private sector workers would be constrained by a £20,000 yearly allowance, hundreds of thousands of public sector staff would likely be caught.

“We are not talking about the super-rich here – many doctors, head teachers and senior civil servants who might not dream their pension would be worth this amount risk being hit. If they breached the annual allowance limit, HM Revenue & Customs would claw back any tax relief received above this level.

“Clearly a salary of £80,000 is more than decent, but anyone earning around this amount who has a mortgage to pay off or a family to support probably doesn’t consider themselves particularly wealthy.

“This presents a very real dilemma for Phillip Hammond and the Treasury as they prepare next week’s Budget. Cutting the annual allowance could undoubtedly raise valuable short-term revenue to help fill the £20bn NHS funding gap.

“In doing so, however, he would risk a backlash from trade unions across the public sector – including, ironically, those representing senior NHS employees.”


Phil Young: Four huge opportunities in open banking

Open banking could drive advice forward faster than anything else, although it is not without its risks You will have heard a few people talking about open banking lately, so what is it? Its origins are in yet another piece of European regulation – the second Payment Services Directive – and it was pushed along […]

Ros Altmann

Ros Altmann: Pension tax relief will be left well alone

Rumours are swirling about changes to pension tax relief being announced in the upcoming Budget. Predictions of a shake-up to pension incentives have been touted for many years but, so far, we have only seen tinkering rather than root and branch reform. The £40bn from pension tax relief would come in pretty handy for a […]

tracker funds

SJP passes £100bn funds under management

St James’s Place has passed the £100bn funds under management mark after reporting another quarter of positive flows. Net inflows for the nine months ended 30 September were £7.7bn, up 15 per cent, with overall funds under management up 11 per cent since the beginning of the year to reach £100.6bn. SJP says it continues […]


The Advice Advantage: What your clients want

Demand for financial advice is growing, but what clients want is changing both rapidly and significantly. In this webinar, Leo Schulz, senior investment writer, speaks to Garrett Harbron, senior investment strategist, about the way turnkey investment solutions and robo-advice are transforming the way value is delivered. They also discuss emerging insights from our ongoing survey […]


News and expert analysis straight to your inbox

Sign up


There are 2 comments at the moment, we would love to hear your opinion too.

  1. Justin, if your going to write an article about public sector employee’s being hit on the annual allowance, then you may wish to swat up on public sector schemes first.

    All the current scheme’s since 2015 are 1/54th CARE schemes, and only those that were more than 13yrs and 5 months from their NRA’s on 01/04/2012 remain in the older schemes. Under the CARE schemes only those earning over £135k will be likely hit purely under those 2015 schemes.

    However many more who have deferred benefits under the older versions of the schemes that are still final salary and are still linked to their current salaries which also cause potential usage of the AA in addition to anything used by the current 2015 scheme (if they get a payrise above the rate of CPI from sept of the preceeding year).

    As such many earning much, much less get hit, if they get a promotion.

    Is this unfair? Now that is a different question.

    But given that with AA calcs for a DB scheme are at a 16 times multiple they need to gain over £2,500pa of index linked income in retirement in one tax year to breach the AA.

    I suspect anyone trying to argue that was unfair, will struggle to suggest it is.

    Personally I think the whole concept of the AA and the LTA along with how those calcs are done is in dire need of an overhaul and probably needs a rebalance to make the rules between DC and DB much fairer, however likewise I think it’s absurd that you’re both limited to how much you can pay in in one tax year and how much you can acrue over a lifetime without being penalised.

    Having just one, probably a lifetime limit would be vastly fairer, especially if the rules between DB and DC were even close to parity.

    • Indeed, but there are a large group still accruing service and a larger group where pay rises will cause an accrual to add to the CARE addition. Couldn’t argue with your last two paras.

Leave a comment


Why register with Money Marketing ?

Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

News & analysis delivered directly to your inbox
Register today to receive our range of news alerts including daily and weekly briefings

Money Marketing Events
Be the first to hear about our industry leading conferences, awards, roundtables and more.

Research and insight
Take part in and see the results of Money Marketing's flagship investigations into industry trends.

Have your say
Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

Register now

Having problems?

Contact us on +44 (0)20 7292 3712

Lines are open Monday to Friday 9:00am -5.00pm