hiriskpaul wrote:It isn't the LTA that causes problems for doctors, it is the annual allowance and the interplay with tapering. The LTA is generous for DB pensions as DB pensions are valued using a multiplier of 20. That's like a totally safe SWR of 5% from a DC pension.
It is the whole retrospective clawbacks/withdrawal allowances structure that creates penal marginal rates.
Yes, that is what I meant by tapering. For doctors it is the tapering away of the pension annual allowance when "adjusted income" goes over £150k that causes the problem rather than the LTA. The BMA have called for the annual allowance to be scrapped, not the LTA.
If you earn over 100k, you are onto a marginal tax +NI rate of 62%. This makes it a no-brainer that you shovel everything over 100k into a pension.
Until you hit LTA....
It is still a no-brainer even if you hit the LTA!
If you have a DB pension, you get to a point of delaying taking it any further means that you would incur Higher Rate tax. If you are also in breach of LTA, this means that you are into a marginal tax rate of 65% on the pension alone. In this case it clearly doesn't make sense to continue working (and paying more tax)
Again, it is not the LTA that is the problem here, it is the annual allowance.
If we had a system that limited the amount of income tax relief (for any purpose, not just pension contributions) to 16k (40% of 40k) per year, abolished LTA, kept personal tax allowances and started the higher rate (45%) band at 100k rather than 150k, then you wouldn't distort behaviour so much, and would raise the total tax take.
It would make the taxation system a bit more transparent, which is possibly the political difficulty with doing that.
Yes the tapering (all tapering) is a complete and unnecessary nonsense.
If the LTA was abolished, they would need to restrict company pension contributions in some way to prevent the system from being abused.