The FDA trade union that represents senior civil servants has urged the Cabinet Office to ensure top officials are given the same flexibility as senior doctors to avoid a pensiont tax trap.
In a letter to civil service chief people officer Rupert McNeil, sent on Friday and seen by CSW, FDA assistant general secretary Lucille Thirlby said that the Cabinet Office must work to address the pension tax faced by some officials.
A series of cuts to how much people can save into their pension pots tax free has meant that some senior public servants, including civil servants, can face tax charges for savings into their final salary 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, which has presented senior public sector workers with a choice of paying extra tax or reducing their hours. Freedom of information requests by the FDA's fellow civil service union Prospect reveal the amount civil servants paid in tax as a result of cuts to pension saving allowances hit £6m in 2017-18.
As a result of concerns that senior NHS consultants and GP practice partners had stopped working extra hours in order to avoid any additional pension contributions that, the Treasury announced it would consult on giving senior doctors flexibility over the amount they put into their pension pots.
'Officials left worse off'
At the time of the announcement, the Treasury also said it would also look at how the pension changes are affecting public services, and Thirlby’s letter to McNeil urged him to make sure that “the Cabinet Office advocate[s] on behalf of its employees to ensure the issues affecting civil servants are made known to the Treasury”.
She added that the impact of the pensions taper had been highlighted by the Senior Salary Review Body for a number of years, culminating in a warning in its most recent report “that pension flexibility should be examined as a matter of urgency with the aim of reducing the perverse incentives that senior public sector employees may be facing”.
Indeed, the SSRB has warned that there is “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”.
This showed that the pension savings penalty “is not just a matter for the NHS”, Trilby said, and the FDA was “extremely concerned” that the SSRB recommendations for pension flexibility had so far been ignored by the government.
A significant tax burden was being incurred by senior civil servants as a result of “simply saving for the future”, she said.
“Poor pay increases are being compounded with punitive taxation, leaving our members even more fiscally worse off,” Thrilby wrote to McNeil.
“Other public sector pension schemes are looking at how to deliver greater flexibility with the aim of reducing the burden and reducing punitive taxation to ensure senior public servants remain in their respective schemes. So, why isn't the Cabinet Office?
“There should be no impediment for the Cabinet Office to explore flexibility, particularly where these come at no direct cost to civil service employers but can be hugely beneficial for the individual. The FDA will, once again, be raising these issues within the civil service scheme advisory board.”
The Cabinet Office must “advocate on behalf of its employees to ensure the issues affecting civil servants are made known to the Treasury”, she added.
Thirlby told CSW that the Cabinet Office “needs to step up and protect civil servants' pensions”.
"The flexibility we seek for senior civil servants would come at no cost to their employers. We're simply asking for a shift in policy, that could make a huge amount of difference to our members as they save for their future,” she added.
"The SCS are working tirelessly to prepare the country for the challenges ahead – without being paid overtime, and while weathering attacks from all sides of the political spectrum. Now is a perfect time for the Cabinet Office to show these civil servants that their efforts are appreciated by implementing these changes, which will help them in their retirement after their years of dedication to public service."
Government ' will look at remuneration in the round'
The Cabinet Office has been approached to respond to Thirlby's letter. Earlier this month, a government spokesperson told CSW that the review of the annual allowance taper will include consideration of how it operates to support the delivery of all public services.
The statement added: “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."