Public Sector High Earners

[Alaric]

From the Guardian

https://www.theguardian.com/society/201 ... ribtutions

NHS Providers, which represents health trusts in England, urged ministers to take urgent steps to resolve this issue. “The lack of action on the pensions issue is extremely worrying. This measure has produced unforeseen consequences, resulting in punitive tax bills for senior doctors who carry out much-needed work for the NHS,” said Saffron Cordery, its deputy chief executive.

I would have thought the problem eminently foreseeable. A government imposes a limit of a million on the "worth" of a defined benefit pension plan, coupled with a 20 times multiplier for converting an income into a notional lump sum. That makes the highest income promise £ 50,000 per year that's free of tax complications. You observe that long standing employees can expect between one half and two thirds of their earnings as pension income. You just need to know that NHS and other public sector employers pay some salaries in excess of £ 75,000 and that it's quite common to spend a working lifetime in the public sector.

[Lanark]

A lot of things in the NHS Pension Scheme seem designed to encourage early retirement.

In the 1995 section of the Pension Scheme it is possible to defer retirement after the age of 60, but if you do you can't claim that pension - the amount you receive when you eventually retire does not increase, you just lose the money.

You cannot claim the 95 section pension while still working for the NHS, though you can work outside the NHS and claim the pension.

So you can have a situation where a nurse or HCA with maybe 15 years of pension at 60 doesnt have enough to retire on, so they have a choice of either keep working in the NHS and lose the pension that they paid into, or quit the NHS and work on the checkouts at Tesco (while claiming the small NHS pension at the same time.)

I think I read somewhere that the average NHS pension payout to pensioners is something like £4,500 per year.

As with many things - there are a few at the top getting rich and a lot at the bottom getting shafted.

The whole issue of retirement ages doesnt seem to have been thought through, there are a lot of jobs where it doesnt make sense to have 70 year olds doing them, so organisations have used pension schemes as a lever to "encourage" people to retire.

Perhaps there should be a new rule that employers can force people to retire, but only when they reach an age where the company pension will provide > 50% of salary. Then employers would then have a real incentive to provide a good pension scheme.

[Chrysalis]

A couple of misconceptions in the posts above.
First, the issue about senior doctors disincentive to do overtime is nothing to do with the LTA. It relates to the annual allowance, and in particular the tapered annual allowance, and the way this is calculated within DB pensions (which has little to do with the actual pension contributions and cannot always be calculated before the end of the tax year). It s possible to take overtime and (although the overtime itself is not pensionable) be landed with a very large tax bill, which cannot always be predicted in advance. The details are quite technical but the net result is that doing the overtime can result in over 100% marginal tax rate.

Second, yes it is possible to retire and claim a 1995 NHS pension and return to work within the NHS. You do have to retire, so you can’t just continue your contract, but it is absolutely possible to work within the NHS while receiving a 1995 pension.

[supremetwo]

There needs to be a fund cap otherwise the lack of affordability of public sector pensions will escalate. (I believe judges have manoeuvred an exemption for them.)

Should anyone get further pension contribution tax relief once the £million allowance is reached?

https://www.pensionsadvisoryservice.org ... -allowance
Pdf file:-
https://www.pensionsadvisoryservice.org ... 1_V4.0.pdf

[ursaminortaur]

There needs to be a fund cap otherwise the lack of affordability of public sector pensions will escalate. (I believe judges have manoeuvred an exemption for them.)

Should anyone get further pension contribution tax relief once the £million allowance is reached?

https://www.pensionsadvisoryservice.org ... -allowance
Pdf file:-
https://www.pensionsadvisoryservice.org ... 1_V4.0.pdf

The lifetime allowance was cut from £1.8 million in 2010/2011 to a low of £1 million in 2016/2017 (now gradually rising again with CPI inflation) which added massive complications to the system with the need for various preservation schemes and affected a lot lot more people. At the same time the annual allowance was even more severely cut from £255,000 in 2010/2011 firstly to the current £50,000 in 2011/2012 and then to £40,000 in 2014/2015. This severe cut in the annual allowance on its own restricted the amounted of tax relief which could be obtained from then on hence there was little real need to cut the lifetime allowance as well - it was purely a tax grab by the government. The lifetime allowance made some sort of sense when the annual allowance was £255,000 (or even the £215,000 it was when first introduced on A-day in 2006) since without it severely high earners could gain really large amount of tax-relief for 40 years instead of which anyone making such large contributions would only be able to do so for about 7 or 8 years with the £1.8 million lifetime allowance.

For final salary DB schemes the restriction on the annual allowance also caused a lot more people to experience problems if after long service they received a fairly modest pay rise causing them to inadvertently exceeded the £40,000 limit. For higher earners the further tapering of the annual allowance limit also causes complications - and seems somewhat pointless as although these indviduals have high salaries they would without the tapering still be restricted to the £40,000 limit and hence restricted in the amount of tax relief they could receive.

In short the whole system has been turned into a complicated mess largely because the Conservative and Coalition governments saw it as a quick way to save money after the financial crash and pushed things too far. Leaving the lifetime allowance frozen at £1.8 million and making a more modest cut to say £60,000 (or at most £50,000) without introducing an annual allowance taper for high earners would have made for a much less complicated system and would have saved the government a reasonable amount of money but instead they introduced more drastic cuts and although it got them more money it also caused problems for a lot more people.

[DrBunsenHoneydew]

There needs to be a fund cap otherwise the lack of affordability of public sector pensions will escalate. (I believe judges have manoeuvred an exemption for them.)

The judges are exempt because they get no tax relief on their contributions to their old scheme.
They are bound by the usual rules for members of the new judges’ scheme.