GP pension tax issue could be prompt to review lifetime allowance
21 January 2019
Health secretary Matt Hancock has entered into discussions with the Treasury following growing anger surrounding GP pension tax rules.
The lifetime allowance for pensions tax relief was lowered from £1.25m to £1m in 2016, meaning GPs do not see any benefit in continuing to pay into their pension fund and instead leave the profession early before their normal pension age.
The issue has prompted an increasing number of opt outs, with figures showing a 78% increase from 2015 to 2016 and a quarter of a million opted out between 2015 and 2017.
Ian Browne, pensions expert at Quilter, said: “From a policy perspective it’s likely Matt Hancock’s discussions will fall on deaf ears in the treasury as they understandably won’t want to carve out a whole set of separate rules for the taxation of doctor’s pensions as you can be sure that other professions with vested interests will want the same treatment and it sets a dangerous precedent. Differing pension rules for different professions is at best unfair and serves to complicate an already incredibly complex system.”
Browne said that if the treasury decided to change lifetime allowance rules for all going forward, there would still remain a group of people who have suffered with the consequence of these rules for a period of time and will likely want recompense, which would hit government finances hard.
Prompt for a review
Steven Cameron, pensions director at Aegon, said the discussions around the annual allowance should look more broadly at the impact pensions limits have on a range of professions.
He commented: “Changing the pension tax relief limits just for GPs would further complicate an already complex tax system and create an unlevel playing field for pension savers in other professions.”
Cameron argued that rather, the government should reverse previous cuts in the lifetime allowance which stood at £1.8 million in 2012 or scrap it altogether.
He added: “We should be encouraging people to save more for longer lifespans in retirement, not forcing them into early retirement to escape a tax bill. A lifting of lifetime allowance would also pave the way for pensions to be used to fund both ‘normal’ retirement income and also potential later life care costs.”
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