Matt Hancock, has revealed that tax charges on pensions are “the biggest concern I have raised with me by GPs”. In the interview, the senior Cabinet Minister also discloses that he is currently in discussions with the Chancellor over the lifetime allowance
The lifetime allowance is a cap on the amount that can be built up in pension pots, amounts over and above which are hit by a punitive tax charge when benefits are taken. The lifetime allowance was first introduced in 2006 under Gordon Brown’s tenure as Chancellor, initially set at £1.5 million and rising annually to a peak of £1.8 million April 2010.
However, it was subsequently cut aggressively by George Osborne. From 6 April 2019, it will be £1.055 million, a decline of over 40% in eight years. The LTA affects many professionals, including GPs and senior NHS staff, whose final salary schemes exceed the limit, as well as those who have diligently saved into their pensions over the years.
Mr Hancock has said GPs are choosing to retire early as they are no longer getting any value from their pension contributions.
Andy James, head of retirement planning at Tilney, says: “The near 40% reduction in the lifetime allowance since its peak has become a stealth tax on professionals and a disincentive to both save and, in some cases, work.
“It is hardly surprising that GPs and many other individuals in government pension schemes decide to stop working early rather than continue with little or no further pension benefit accruing and so a measure intended to constrain the cost of pension tax reliefs by successive Chancellors is now exacerbating staff shortages in the NHS.
“The lifetime allowance is fundamentally punitive in nature. Both contributions and accrual are controlled by the annual allowance and so the case of a lifetime cap is dubious. For those in defined contribution schemes, like most private-sector workers now are, the LTA is merely a tax on pension growth that penalises investment performance. This is wholly unfair and in my view, it should be scrapped entirely.”