David Robbins, Director at Willis Towers Watson: In some cases, existing tax rules were seeing doctors pay the Government, rather than being paid by the Government, when they signed up for extra shifts. The coronavirus outbreak only made it more pressing to do something about that.
“The changes announced also mean that highly paid people in the private sector will be able to save significantly more into pensions without incurring a tax penalty. For example, someone with an income of £170,000 and not contributing themselves can currently face a tax penalty if their employer pays more than £20,000 into their pension on top. From 2020/21, that employer contribution could be as high as £40,000. Only people with income including employer pension contributions of more than £300,000 will face tougher restrictions than now; those whose income on this measure is £312,000 or more will be restricted to contributing £4,000 without tax penalties, rather than the £10,000 they can save at the moment.
“If things stay like this, it could make pensions a more important part of remuneration for many high earners. However, it is possible that the Chancellor will have an eye on more fundamental changes later on – occupants of No.11 frequently have desires on the revenue they could get by taxing pension savings differently, and today’s announcement is expected to cost £670m a year by 2024/25.
“This change deals with a problem of the Government’s own creation. The tapering away of the Annual Allowance for high earners was announced in 2015 to pay for an inheritance tax cut. The problems really came to a head this year because it is the first year in which affected individuals could no longer carry forward any unused allowances from pre-taper years.”
Fiona Tait, Technical Director at Intelligent Pensions comments: “We were certainly anticipating a change to the tapered annual allowance, and given the pressure to get something implemented quickly I think this is as good as we could expect. I am pleased to see that the increase to the Adjusted and Threshold income are significant and therefore the number of individuals caught by this most complicated and unpopular limitation will be vastly reduced, and also that there has been no attempt to restrict the change to NHS employees where the impact is arguably most severe. Trying to carve out rules for different sectors would only add complexity, and unfairness, to an already complex system.
“Unfortunately for the unlucky few who are still caught by the taper the practical difficulty of identifying income, often before it has been received and obtaining information about other allowances and reliefs still remains. The complexity of the current system should certainly be revisited, ideally as part of a wider ranging review into the cost and effectiveness of pension tax relief in general. We should not lose sight of the fact that people need to save for their own retirement and any incentives should be as simple and attractive as possible.
“Another not unexpected announcement was the creation of a northern “economic campus”, together with more regional Treasury offices. The objective of spreading economic opportunity away from the centre is to be applauded however, care should be taken to ensure that diversity of location does not result in diversity of practice. Consistent application of taxes is essential to ensure fairness and also to allow people to manage their tax affairs with some degree of confidence that they will be treated the same wherever they are in the UK.”
Commenting, Steve Webb, partner at LCP said: “The system of pension tax relief is far too complicated and this is a missed opportunity to make the system simpler and clearer. Although raising the thresholds will substantially reduce the number of people affected by the tapered annual allowance, some higher earners are still at risk of being caught, especially if they get a promotion or take on additional responsibilities. What was needed was sweeping simplification but what we got was more Treasury tweaking.
“The unintended consequences of this complexity have been seen most clearly for senior NHS staff. With the pressure on the NHS arising from the Coronavirus outbreak, it is even more urgent that doctors can put in extra hours without the risk of unexpected pension tax bills. Although most doctors will now excluded from the tapered annual allowance it would have sent a much clearer message to abolish the taper altogether’.
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