Debate: Should the tapered annual allowance for tax on pensions be abolished?
Should the tapered annual allowance for tax on pensions be abolished?
Yes – Steve Webb is director of policy at Royal London.
To understand why this issues matters, just look at doctors. Most senior doctors are well-paid and are in a good pension scheme. But when doctors who work harder can end up out-of-pocket, something has to change.
The problem is the “tapered” annual allowance, which limits the amount of tax-relieved pension contributions that higher earners can make.
The taper has many flaws. It switches on very abruptly, causing “cliff-edge” losses for those who do more work. It is hideously complex. And it is unsuited to those workers, including doctors, who cannot be sure what they will earn in the coming year.
The government’s proposed “solution” involves adding new complexity to the NHS pension scheme. But this issue doesn’t only affect doctors, and what is needed is a simpler system for all, not a more complex system for some.
The taper has to go. There are simpler ways to cap the total amount of tax relief which higher earners can enjoy, and the promised Treasury review must recognise this as a matter of urgency.
No – Luke Hildyard is director of the High Pay Centre.
Calls to scrap the pensions allowance taper are hopelessly naive and completely out of touch.
There is considerable bleating about the complexity of the taper, but it is essentially pretty simple. For the very rich, tax relief on pension contributions diminishes as they earn more, but by less than the increase in earnings so that there is still an incentive to work. Anyone affected is comfortably inside the richest one per cent of UK earners.
Much of the focus has been on how this system might affect high-paid doctors. But back in the real world, the NHS struggles to meet the needs of an ageing population; schools and social services count the cost of repeated funding cuts; youth services and policing cry out for investment with knife crime on the rise.
Scrapping the taper and the millions of pounds of tax it brings in would make these crises even more acute, while benefiting only the very rich. We are already among the countries with the worst inequality and lowest spending on public services in Europe. Worsening these unenviable records is a terrible idea.