£6m cost of pension contribution tax trap for top civil servants revealed

Figures from Prospect trade union come as government plans review of pension tax rules for public sector after NHS reforms

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By Richard Johnstone

08 Aug 2019

The amount civil servants paid in tax as a result of cuts to pension saving allowances hit £6m in 2017-18, a Freedom of Information request has revealed.

Figures obtained from the Cabinet Office by the Prospect trade union and shared with CSW show that the number of civil servants who paid tax on their pension savings grew from 40 in 2014-15 to 289 in 2017-18, after the cap on tax-free savings was lowered. Over the same period, the total tax paid through the Civil Service Pension Scheme rose sixfold from £892,528.12 to £6,016,923.05.

The payments come after a series of cuts to the amount that employees can pay tax-free into their pension scheme. 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, presenting senior public sector workers with a choice of paying extra tax or reducing their hours.

The impact on senior civil servants is revealed after the government announced plans to give senior doctors greater flexibility over their pension pots to tackle concerns that hospital consultants are turning down shifts that could lead to a hefty tax bill.

The government took action after 42% of top doctors who took part in a national survey said they had cut down on shifts since the taper was introduced. However, there have also been concerns about the potential impact of the taper on other parts of the public sector.

The Senior Salary Review Board, which makes recommendations on Senior Civil Service pay, said “there was hardly any difference in take-home pay for a [high-earning] civil servant working full time contributing to the Alpha [final salary] pension scheme relative to someone working 80% of full time, due to the former facing a higher effective tax rate”.

The Treasury has said it will review how the tapered annual allowance affects the delivery of public services such as the NHS.

Prospect deputy general secretary Garry Graham said additional payments paid by senior officials could add up to more than £6m, as the FoI request only covers those who paid the demand through the pension scheme, not those who paid HM Revenue and Customs directly.

The £6m in so-called "scheme pays" are made by the civil service pensions administrator MyCSP in exchange for a reduction in pension benefits. Of the 289 payments through the scheme in 2017/18, 70 were mandatory, meaning they met three criteria: pension savings in a single year within a civil service pension scheme exceedws £40,000; the tax charge was over £2,000; and, the benefit deduction was applied within the same scheme as the overpayment.

A further 219 were voluntary, meaning these criteria were not met.

Graham told CSW the union welcomed the government’s decision to consult on flexibilities in the NHS pension scheme and called for the reform to be rolled out elsewhere in the public sector. He also welcomed the decision to review the impact of the taper on public sector workers.

“We are concerned that in the civil service, the annual allowance tax charges incurred by members who have elected for ‘scheme pays’ have ballooned from £1.8m in 2015/16, to £4.5m in 2016/17 and £6m in 2017/18,” he said.

“The true extent of the tax charges may be even greater, with members paying charges directly to HMRC rather than via scheme pays or from inaction of members over their tax liability.

“Prospect has members across the public sector and it is clear that the tax revenue generated from the annual allowance is coming disproportionately from public sector pension scheme members. This cannot be fair and must be addressed.”

Graham’s comments come after the FDA trade union said that the rules mean civil servants were incurring significant tax burdens simply by saving for the future.

“As it stands, individuals may be left choosing between a promotion and a healthier pension pot,” said Lucille Thirlby, the union’s assistant general secretary.

A government spokesperson told CSW: “Public sector workers play a crucial role in delivering Britain’s world-class public services. We look at remuneration in the round, taking action when required, as we have done with the NHS, which is facing a significant and unique delivery challenge.

“The review of the annual allowance taper will include consideration of how it operates to support the delivery of all public services.”

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