Health secretary Matt Hancock is reportedly in discussions with chancellor Philip Hammond over doctors’ pension tax treatment.
Matt Hancock, the health secretary, is reportedly in discussions with chancellor Philip Hammond regarding the tax treatment of pensions for GPs and consultants.
Those who breach the allowance, which is rising in line with inflation (consumer price index) to £1,055,000 in April, are hit with punitive tax charges of 55% due on money above the limit if it is taken as a lump sum, or 25% taken as income.
This threshold encompasses not only pension contributions but also any growth and dividends earned in a pension fund.
Although the limit may seem generous, a growing number of middle-income pension investors, including GPs and consultants, risk breaching the allowance. Hancock told Pulse that he has spoken to Hammond over the issue.
The fear is that GPs have been opting to retire early on approaching, or hitting, the Lifetime Allowance.
At Money Observer, we have long argued that the Lifetime Allowance is essentially a stealth tax on investment success. Over the years since it was introduced in 2006 by the then chancellor Gordon Brown, it has been progressively whittled away to boost the Treasury coffers. In 2012, for example, it stood at £1.8 million.
Various experts have called for the Lifetime Allowance to be scrapped, but the idea of the taxation being changed for some and not for all is unlikely to happen, points out Ian Browne, a pensions expert at Quilter, the wealth manager.
He adds: “From a policy perspective, it is likely Hancock’s discussions will fall on deaf ears in the Treasury; they understandably won’t want to carve out a whole set of separate rules for the taxation of doctors’ 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.”
Sagar Morjaria, a wealth adviser at Canaccord Genuity Wealth Management, says that many people wrongly assume that they will never amass £1 million in their pension pot. He adds: "The net has been widened considerably by several years of progressive reduction, trapping many more retirees than previously. Understandably, it is viewed by many as a tax raid on pensions.
“People brush it aside, as they assume only the super-wealthy would have £1 million in their pension pot. But that’s not necessarily the case.”
There are, however, ways to gain an upper hand over the controversial Lifetime Allowance. Here, as part of our special Wealth publication in January, Morjaria outlines three ways that investors can get the upper hand.