Pension experts have dismissed a solution to raise the tapered annual allowance threshold income, calling it a sticking plaster which would not solve the underlying problem.
Treasury officials have discussed raising the tapered annual allowance threshold income from the current from £110,000 to £150,000, a level at which pension contributions are counted as earnings and lower tax-free allowances start to kick in.
It was argued such a solution would solve the problem for most doctors who have been turning down additional work for fear of large tax bills, since consultants’ median earnings are £112,000 and it is estimated that 90 per cent would fall below the new limit.
This solution would not be exclusive for NHS pension scheme members, and would be applied to all taxpayers. Introduced in 2016, the taper gradually reduces the annual allowance for those on high incomes, meaning they are more likely to suffer an annual tax charge on contributions and a lifetime allowance tax charge on their benefits. It means that for every £2 of adjusted income above £150,000 a year, £1 of annual allowance will be lost.
The British Medical Association, which has been campaigning for the tapered annual allowance to be scrapped, has already criticised the proposed solution. But experts believe that simply raising the threshold income would not remove any of the complexity of the taper, nor the threat of doctors facing a ‘tax cliff’ when their income increases through promotion or taking on additional work.