Hammond dashes hope for pensions tax overhaul

Gary Smith, Chartered Financial Planner at Tilney comments:

“The Chancellor’s comments in parliament today defending the tapered annual pensions allowance as ‘necessary to deliver a fair system and to protect the public finances’ will dash the hopes of the those who argue that this allowance is highly punitive and overly complicated, preventing high earning professionals from having the same access to pensions as the rest of the population.

“In revealing that measures taken to reduce pension tax relief for higher earners is expected to raise £6 billion a year, he has essentially admitted this is a stealth tax. In truth the outlook for pensions tax reliefs is likely to only get worse should Labour win the next election, as the party advocates a major reduction in the threshold for the 45p tax band, as well as a new 50p band, and so further raids on pension tax relief will inevitably be needed to stop savers mitigating higher income taxes.

“For senior medical professionals who have been hit hard by this allowance, there was at least some recognition by the Chancellor today of the problems that these pension tax charges are having within the NHS. The path to addressing this is now very clearly going to come from making changes to the NHS pension scheme rather than the allowance itself, to make it more flexible so that high earning clinicians are not faced with difficult decisions around reducing hours or retiring earlier to avoid tax charges. This will most likely take the form of allowing doctors to take partial membership of the scheme or breaks from it in exchange for higher salaries, so hopefully there will be some positive new options available for doctors in due course.”