Ending pension tax trap for top civil servants ‘must be priority for next chancellor’

Written by Richard Johnstone on 27 November 2019 in News
News

Announcement of remedial action for doctors highlights Cabinet Office refusal to act, say unions

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The pensions tax trap that landed senior officials with a combined £6m additional tax bill in 2017-18 must be tackled as a matter of urgency by the next government, civil service unions have said.

The FDA and Prospect trade unions said it would be unfair for doctors to be offered relief that is not available to civil servants facing the same bill after the Department of Health and Social Care agreed to reimburse clinicians amid fears additional tax bills could stop doctors working.

The tax trap arose following a number of cuts to the amount that individuals can pay into their pension savings tax free.


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In 2011-12 the allowance was cut from £255,000 a year to £50,000, followed by a further cut in 2013-14 to £40,000. An additional taper rate was introduced for those earning above £150,000 in 2016-17, which meant the tax-free limit could be as low as £10,000 for those earning £210,000 or more.

Any payments into pension pots above the cap could lead to a one-off tax bill, added to a worker's tax liability for the year, which has meant senior public sector workers faced a choice of paying extra tax or reducing their hours.  Figures obtained from the Cabinet Office by the Prospect trade union in August showed that 289 senior civil servants paid additional tax worth a total of £6,016,923.05 through their pension scheme.

The government announced plans in August to give senior doctors greater flexibility over their pension savings after 42% of top doctors who took part in a national survey said they had cut down on shifts since the taper was introduced and planned a full review of the impact of the allowance cuts on public sector workers.

However, the deferral of the Budget and the calling of an election has meant that no changes can be made in the current tax year, which promoted NHS England chief executive Simon Stevens to take what he called urgent remedial action “to try and remove barriers to needed clinical staffing over the winter period”.

In a letter to health secretary Matt Hancock published last week, Stevens said: “To that end, as you know, we have been working with your officials and the Treasury on an in-year mitigation. This will involve a commitment to make payments to certain clinical staff outside of the NHS pension schemes to restore the value of their pension benefits package, if they have elected to use the 'scheme pays' facility to settle an annual allowance tax charge arising from of their pension saving in the NHS schemes in 2019/20.”

This proposal had been agreement with the Department of Health and Social Care’s permanent secretary Sir Chris Wormald, but required a ministerial direction to be implemented as it did not comply with the regularity and propriety requirements of Treasury’s Managing Public Money guidance.

Providing the direction, Hancock said “I accept your judgement that it is operationally necessary and urgent to take further action on clinicians’ pensions to protect patient care over winter. I accept your judgement too that this cannot wait until after the General Election, and on that basis I am advised that its announcement is compatible with pre-election guidance”.

Responding to the announcement, Lucille Thirlby, assistant general secretary at the FDA trade union, said that the government was not offering any similar provisions to settle civil servants annual allowance tax charge, despite the fact that the number of individuals in the civil service using the ‘scheme pays provision to settle tax bills had quadrupled in three years.

“This is not just an issue for clinicians in the NHS, and one-off fixes won’t sort the difficulties of pensions tax,” she said.

“The government has accepted the need to consider whether we need further changes for pensions flexibilities, and the chancellor announced a review by HM Treasury of the operation of the pensions annual allowance taper. Whist the FDA welcomes the review of the taper, this is only part of the problem civil servants face. There are other concerns having a profound impact on our members, and we believe there needs to be a wider review of pensions taxation.”

Prospect deputy general secretary Garry Graham added that the provision does not solve the wider problem of how the tapered annual allowance is functioning.

“It is grossly unfair that people in other vital public service roles who are being impacted in the same way as NHS staff, including Prospect members in the civil service and fire service, are not receiving similar relief,” he said.

“There was supposed to be a budget this month and we had hoped that the chancellor might take some action to address this issue. Whoever is chancellor after the election must deal with it forthwith.”

About the author

Richard Johnstone is CSW's deputy and online editor and tweets as @CSW_DepEd

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