Steve Simkins, Pensions Partner, KPMG said: “The move towards greater flexibility in the NHS Pension Scheme to allow doctors to limit their Annual Allowance charges will be welcomed. In particular, the potential step to balance a reduction in pension accrual with a taxable cash payment in lieu of pension is significant and consistent with the government’s intention to limit pensions tax relief.
“This is a problem that has been brewing for a number of years and there is no easy solution as two regimes have come to a head - either the pensions taxation system needs to simplify or public service pensions schemes need to become more flexible. There are significant wider challenges with both, but on balance we believe this problem can be resolved through the schemes themselves.
“Changing the NHS Pension Scheme so that it is fair for everyone – not just clinicians, but also other NHS leaders and lower paid staff – will not be straightforward. It is appropriate for everyone to benefit from greater flexibility which the Treasury will need to balance against a potential loss of cash flow. However, the administration and communication challenges should not be underestimated.
“This is a wider issue across public services, not just the NHS, and so other public service schemes should be looked at in the same context.”
David Brooks of Broadstone: "Boris Johnson has come good on his promise to try and resolve the NHS crisis caused by the impact of the unpopular and almost incomprehensibly complicated tapered Annual Allowance. The announcement from the Government is quite narrow in its current scope, focussing on NHS and the use of a "salary in lieu of pension" solution similar to that used in the private sector. However, we would still expect the review of the tapered Annual Allowance to be extended as it must cover all pension savers.
"The taxation of pension contributions has been a problem that successive Governments have struggled to resolve caught between wanting to restrict relief for high earners while retaining the benefits the tax relief bonus on pension contributions, in return for savings being held inaccessible for many years, provides. There have been numerous consultations over recent years with the Treasury toying with ideas to turn pensions into ISAs or to introduce a flat rate level of relief for all people for all contributions.
"This seemingly insoluble problem, without the pressure of the NHS issues and the enormous distraction of Brexit, would suggest we're not going to get a long-term answer with this next review. The Government also still needs the revenue and will also be nervous about being seen to give tax breaks to very high earners.
"As the solution should be applied to all, not just the NHS or other public sector workers, it would seem the obvious answer would be simultaneously abolish the tapered Annual Allowance and reduce the standard Annual Allowance that applies to everyone. The Treasury may feel that a move from £40,000 to £30,000 is in order to restrict the capacity for high earners to save.
"We will have to wait and see but this does not seem the time for wholesale changes. That's even presuming the current Government remains in place for the duration"
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