The union said that tax relief reform should be evidence based, follow a period of consultation and be sustainable, fair and equitable over the course of a pension saver’s lifetime.
Prospect is calling for a new Pension Commission to be established to develop a holistic government policy on pension saving in the UK.
Auto-enrolment, widely seen as a hugely successful policy, has reversed declining rates of participation in pensions and resulted in record amounts being saved into pensions in the UK.
The commission would look to build on the success of auto-enrolment in boosting participation in pension schemes by making policy recommendations to:
- improve participation in pensions among self-employed workers
- tackle the high levels of workers under saving for retirement
- address the gender pension gap.
Tapered annual allowance
Skilled professionals in key areas of the economy are being discouraged from seeking promotion, are retiring early or working reduced hours because of the tapered annual allowance.
The tapered annual allowance was introduced from 6 April 2016. For the taper to apply, the limits on threshold income and adjusted income must both be exceeded. For every £2 of adjusted income over £150,000, an individual's annual allowance is reduced by £1
The purpose of the policy was to prevent exploitation of additional rate tax relief by those earning in excess of £150,000. However, its complex and flawed design has led to the policy affecting people earning between £110,000 and £150,000.
The annual allowance of £40,000 may be reduced or ‘tapered’ if the ‘threshold income’ (the annual income before tax less any personal pension contributions and ignoring any employer contribution) is more than £110,000.
Impact on the NHS
NHS England and NHS Improvement have taken exceptional action to tackle the problem of staff being unwilling to work additional hours because of the pensions tax rules. In xyz they said:
“There is an urgent operational requirement to tackle the problem in the NHS in England. As a result:
“Clinicians who are members of the NHS Pension Scheme and who as a result of work undertaken in this tax year (2019/20) face a tax charge in respect of the growth of their NHS pension benefits above their pension savings annual allowance threshold will be able to have this charge paid by the NHS Pension Scheme (by completing and returning a ‘Scheme Pays’ form before 31 July 2021) meaning that they don’t have to worry about paying the charge now out of their own pocket.
“The NHS employer will make a contractually binding commitment to pay them a corresponding amount on retirement, ensuring that they are fully compensated in retirement for the effect of the 2019/20 Scheme Pays deduction on their income from the NHS Pension Scheme in retirement.”
Impact on Prospect areas
Prospect pointed out that this is a problem across the public and private sectors – not just for the NHS.
In a recent Prospect survey, members strongly supported scraping the taper and said they would welcome flexibilities such as those being introduced into the NHS scheme.
“It is unfair to acknowledge and attempt to resolve the issues that this is causing within the NHS while ignoring other public services which are also vital,” the letter said.
The union also pointed out that the number of Pension Savings Statements issued across various public sector pension schemes more than doubled between 2014-15 and 2017-18.
“This shows that pension scheme members earning far less than £150,000 a year are being affected.”
Prospect professions that have been especially affected include:
- senior leaders within the Fire and Rescue Service
- air traffic controllers employed by National Air Traffic Services (NATS);
- inspectors in the Office for Nuclear Regulation (ONR).
This is leading to a shortage of skilled staff for these vital roles, the union said.
One example from the Fire Leaders Association was where a temporary promotion led to a situation where the member was in a financially worse position.
The additional tax payable, and the ‘Scheme Pays’ deduction that stemmed from this, were more than the salary earned through the temporary promotion.
In the ONR, nuclear inspectors, are retiring early, working part-time and not applying for promotions and senior inspector roles are not being filled.