Steven Cameron, Pensions Director at Aegon, said: “We’re pleased the Government is taking seriously the pensions plight of a significant number of highly paid medical professionals who find taking on extra work creates a significant tax bill because the resulting extra pension entitlements break pension tax limits. It can’t be right that any higher earning individual, and not just those in the NHS or public sector, can face the dilemma of having to turn down work or take early retirement to avoid a pension tax charge.
“We support all employees, NHS and otherwise, being given the flexibility to ask for their own and their employer pension contributions to be dialled down to reduce accrual. In the private sector, reduced employer contributions would typically be reflected in increased pay, making it interesting that the Government is leaving it up to individual NHS employers if they choose to do likewise.
“The Government proposes to allow NHS employees to opt at the start of each tax year for a lower accrual, but to increase it towards the end of the tax year once their overall earnings, pension accrual and any tax charge are clearer. While this does address the fact that overall NHS consultant and GP earnings in a tax year can be unpredictable, it will add considerably to the complexity of both scheme administration and employee choice. It is questionable how often this will be used in practice.
“The Government is also consulting on allowing high earning staff who receive a large pay increase entitling them to a large increase pension, potentially producing a tax charge, to instead phase the increased pension entitlement over a number of years. If this is permitted, then the Government must make it clear that the equivalent provisions can be built into private sector pension scheme rules.
“While these proposed concessions are a step forward for NHS employees, all people should be strongly encouraged to save what they can for retirement, and reading about the benefits for some of reducing contributions sends out a dangerous signal.
“The Government has recognised that juggling tax, pay and pensions will be far from simple and is proposing offering affected individuals access to education, information and guidance. It remains to be seen how helpful this will be but for a fully personalised recommendation, many would be best served seeking the support of an independent financial adviser.”
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