Pensions tax allowances should be reviewed and simplified

The Office of Tax Simplification (OTS) has said that the Government should review and simplify pensions tax allowances to give GPs and other doctors ‘more ability’ to plan their pension.

Moreover, it has said that the Government should scrap the lifetime tax allowance on the NHS Pensions scheme because, under the rules, higher-paid doctors in defined benefit (DB) or Defined Contribution (DC) schemes cannot afford to take on extra shifts.

The Department of Health and Social Care (DHSC) admitted recently that this does happen, and industry professionals have also said that they are concerned that the current annual allowance mechanism can “produce an effective marginal rate of tax, such that it is no longer in some doctors’ interests to do additional work”.

According to the OTS, because the policy aims to limit the overall amount of pensions savings tax relief available to any one individual, applying both the annual allowance and lifetime allowance charges to pensions may be unnecessary.

The body then suggested that one option would be for the annual allowance to apply to DC schemes and the lifetime allowance to DB schemes, which, according to the group, reflects the most natural operational and administrative fit between the two approaches and the type of scheme involved.

The suggestions were met with a generally favourable response and also a ‘fingers crossed’ attitude that the Government will listen to its independent tax adviser. One commentator called them “very sensible”, while another said he was ‘delighted’ that the OTS had included the proposal to scrap the annual allowance in DB schemes in its report.

The OTS is waiting for the Government to respond to the report and said it ‘stands ready to assist with any further work in this area’.