High earners are set to receive a pension tax windfall under government plans to solve the tapered annual allowance crisis in the NHS.
According to a report from The Times, the Treasury plans to raise the threshold at which the annual allowance taper kicks in from £110,000 to £150,000.
Under current rules, anyone with a threshold income of above £110,000 and an ‘adjusted’ income of above £150,000 has their annual allowance reduced.
This has been causing issues for NHS staff and has been linked to a rise in NHS waiting times, with top doctors and surgeons refusing to work overtime shifts to avoid breaching their annual tax-free allowance.
The new rules would raise the threshold by £40,000, which would reportedly allow 90% of consultants to be able to take on extra shifts without accumulating hefty tax bills. But the tax reliefs would apply to all high earners, not just NHS staff.
The government has proposed a number of pension tax solutions in an attempt to ease problems in the NHS. Last year, it proposed to allow senior doctors to set their exact level of pension accrual at the start of each year.
More recently, health secretary Matt Hancock proposed the NHS would pay tax bills handed to front line staff – a solution expected to cost hundreds of millions – in a bid to keep them in work over the Christmas period.
But the proposals have been widely criticised by experts, with the British Medical Association calling them ‘a sticking plaster’.
The government confirmed last week that it had launched a review into the tapered annual allowance, with the outcome expected to be announced in the upcoming budget on 11 March.
Tom Selby, a senior analyst at AJ Bell said that the proposal to raise the point at which the taper kicks in would help reduce or eliminate shock pension tax bills for large numbers of high earners, but that the complexity of calculating the taper would continue to cause problems for doctors.
‘The problem with the taper isn’t just the point at which it takes hold – it is the fact that, because things like overtime make earnings levels far from certain, many people will have no idea if or to what extent they will be affected,’ he said.
‘When you combine that uncertainty with the mind-boggling complexity of calculating the taper, particularly in relation to defined benefit schemes, it is far from clear that simply raising the point at which it takes effect will be enough to stop doctors refusing shifts.’
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