Skip to content


Ms Reeves said: “At a time when families across the country face rising bills, higher costs and frozen wages, this gilded giveaway is the wrong priority, at the wrong time, for the wrong people.

“That’s why a Labour government will reverse this move. We urge the Chancellor and the Conservative government to think again too.”

She promised, however, that Labour would introduce a separate scheme allowing doctors to pay into pension pots tax-free, amid fears that hundreds of NHS consultants are considering early retirement.

These people, here, should not be allowed to save for their pensions because they’re bad people.

These people, here, should be allowed to save for their pensions because they’re good people.

Nowt like the rule of law, is there?

16 thoughts on “Interesting”

  1. I sneeze in threes

    I thought the problem was Drs have to have a payment in to their pension (either by law, or NHS contract, I don’t know which) and once they have exceeded their life time pensions allowance they then suffer punitive tax rates (I’ve heard close to or even above 100% (that may be bullshit).

    The answer is surely to alter employment contracts / law to stop mandatory pension contributions once lifetime allowance is reached. Of course the Drs would then feel it unfair if they didn’t receive the forgone pension in cash (taxed at their normal marginal rate). I don’t know if the NHS actually budgets/ pays for pensions contributions to actually fund them or is it some deferred thing that comes from another budget?

    This change could apply to everyone not just NHS and wouldn’t cost anywhere near the sums talked about for the changes they are now making.

  2. AFAIK, being a member of the NHS Pension Scheme isn’t compulsory, it’s just a damn good idea given the cost/benefit, even with the tax penalties.
    The Lifetime Allowance charge (LTA) applies when the pension is put into payment. At that point there would have been (until now) a 25% charge on the value of the pension above £1.073MM (pension value being calculated as 20x inital pension, plus lumpsum. Note: this gives an absurdly low value in comparison to the benefits). Some of them might feel miffed at having to use some/all of their tax free lumpsum to pay for this, but for most active members it’s not something they need to worry about until retirement.
    I reckon the annual £40k contribution limit has been causing more trouble. With employee contributions of 14.5% of earnings at the top end, plus ~20% from the employer, it’s not hard to breach this limit. Any excess is taxable at the member’s marginal rate, and as earnings increase/with fiscal drag they’ll see this chunk getting bigger every year.

  3. These people, here, should not be allowed to save for their pensions because they’re bad people.

    These people, here, should be allowed to save for their pensions because they’re good people.

    Isn’t that simply politics – favoured client groups and all that?

    And both parties chase after that particular sainted client. We just had a *Conservative* lockdown where said members, for whom pots and pans were deferentially clashed, was given their own priority entrances/zil lanes at the supermarket queues.

  4. @ I sneeze in threes

    That’s not really it. The first problem is when you are going along happily putting lots of money into the pension for your retirement so keeping the tax your bill reasonable. Perhaps you get to the point where you max out the annual allowance so suddenly start paying a lot more tax at a high effective rate of perhaps even 60%. That hurts and make you question the value of continuing to work. The second thing is you max out your lifetime allowance. Now all your future contributions and the investment gain on the pension pot are going to be taxed at 55% when you crystalize it. And you will still need to pay income tax on the regular pension income you take. To avoid the 55% tax on your investment gain the solution is to crystalize your pension early at age 55 or when you hit the LTA. Then you don’t need to take pension income but you are earning a doctors salary and the pension is safe from the 55% tax but now you can only put 4k into the pension (now 10k) so your taxable income jumps up and you get hit by a lot of tax. Suddenly the tax bill has soared and again you question the point of continuing to work. The Laffer curve is real and furthermore step changes in tax have a much bigger behavioral impact that a gradual slope.

  5. I sneeze in threes

    Thanks for the clarifications.

    The reduction in annual contributions is meant to be there to stop you recycling your pension or leave no sun back in to a pension. Could clever people not allow the contribution from salary to stay at levels from say the previous X number of years before pension is accessed so to reduce/prevent recycling?

    Hunt’s solution is a sledgehammer when possible all is needed is a claw hammer.

  6. @ KyleT

    “pension value being calculated as 20x initial pension, plus lumpsum Note: this gives an absurdly low value in comparison to the benefits”

    Two very good points. One – the 20x figure is ridiculously low. I took my HMRC pension as soon as I could – at 55. I’d only spent 10 years at HMRC and the pension was £5.5k p.a + £16.5k lump sum. So my pension pot was valued at £110k + £16.5k = £126.5k. If I’d had to purchased an index linked, retire at 55 annuity as a private sector worker to give me a starting pension of £5.5k, it would have cost an f of a lot more than £110k.

    Two – Despite the low multiplier, the recently abolished LTA would bite on a public sector pension of £44k p.a. And there are a lot of senior public sector workers looking forward to at least that.

    That’s why it’s been abolished. It’s a sop to the public sector.

  7. AndyF: Which, as I am sure you are aware but others may not be, is precisely why Nigel Lawson and Norman Fowler, in devising the 1988 tax regime for DC pensions, constructed a system (without an LTA) based on annual allowances proportionate to earnings at rates that escalated with age against a salary capped at a value indexed to prices rather than to earnings and with flexibility provided by optional carry back of contributions by one year and carry forward of unused relief by up to six years. In merging DB and DC tax regimes, Gordon Brown claimed to be sweeping away unnecessary complexity; what his successors have spent the subsequent years painfully re-discovering is why that complexity was there in the first place.

    Unfortunately while an engineer responds to design complexity by a good faith search for the rationale, a politican seizes upon it as an opportunity to denounce his predecessor of the opposite party as a malicious half-wit.

    I don’t know if there was anyone around in the Treasury in 2004 to ask Gordon Brown “Do you really mean to make higher rate tax voluntary for so many more people?”, but even if there had been, the flush state of the boom-time public finances might have resulted in it making no difference.

  8. AndyF – is it definitely the case that the tax hit from exceeding the LTA occurs when the pension is drawn down? That is, hit the LTA at age 55, retire at 65, and then receive the bill?

    I had it in my head that you received the bill for/in the year the LTA was exceeded, ie. age 55 as above.

  9. @Ducky McDuckface

    It hits when you crystalize. If you have multiple pensions each one you crystalize takes a percentage of (normally) the currently active LTA. All is fine till you hit 100% of LTA then the tax becomes due on the portion of that pension over 100% and all future pension crystallizations will be taxed when they occur. If it’s a DB pension the amount you get per month is reduced. It its DC then it is taken directly as tax.
    Once you have crystalized and are in drawdown it doesn’t matter that those funds grow to with further investment gain. Income taken from your drawdown pot is of course taxed as income.

  10. Dreadful politics from Reeve, but original or even rational thoughts have always been just beyond her grasp.

    This messing about with pensions is a nonsense and will continue to cause all kinds of unintended problems.

    The labor cry that it favours the richest just isn’t true – once you earn the big bucks you lose the ability to contribute anything worthwhile into a pension anyway because of tapering. So this really isn’t of any benefit at all to the highest earners. What they should be doing is removing the silly multipliers in place for civil service DB pensions so they become subject to the same issues – then maybe the blob will realise the problem.

  11. I have never understood this issue

    People with good pensions get taxed on them

    Clearly the tax take on contributions will be less than that from a pension in payment after decades of investment returns and compunding and inflation

    I know this is over a politician’s event horizon but from a national perspective this is good isnt it?

    After all, a lifetime of savings and investment ensures you get no benefits either – another net win for the State

    And you end up paying for your own care home fees

  12. @Alan Peakall

    I don’t know if there was anyone around in the Treasury in 2004 to ask Gordon Brown “Do you really mean to make higher rate tax voluntary for so many more people?”,

    By 2005 there were plenty of people around pointing out it was costing £4 billion per year in lost tax revenue. Whilst it was as you say mainly people taking themselves out of high rate tax, it was possible to put up to 100% salary into your pension so you could avoid income tax altogether if you could live off savings (or debt) instead of income. Thank you Gordon Brown.

  13. @Andrew C (and Zaichik)

    I do these kinds of valuation in my day job. For a male retiring today at age 60, with a spouse of the same age, old public sector style benefits (50% widow’s pension, full CPI increases) the multiplier would be about 29.4 – i.e., a £10k pension has a present value of £294k.

    This is also a lot lower than in the recent past due to the recent bond market chaos. Running the same calculation a year ago gives a multiplier of ~49.9.

    It irks me that most of them have no concept of how valuable their pension benefits are. I saw one NHS member whingeing on social media yesterday that they weren’t going to receive a “full” state pension because they’d been in the NHSPS for 30+ years. Had to restrain myself from getting involved in an hour long exchange about Contracting-out, which they wouldn’t understand anyway.

  14. @KyleT
    As chair of the pensioners’ association of a former insurance company, I can confirm that nobody understands contracting-out. Neither the DWP, HMRC, scheme trustees, nor the scheme administrators (and certainly not I). I’m happy to make you the honourable exception!

  15. “I can confirm that nobody understands contracting-out”

    Lord Palmerston: “The Schleswig-Holstein question is so complicated, only three men in Europe have ever understood it. One was Prince Albert, who is dead. The second was a German professor who became mad. I am the third and I have forgotten all about it.”

Leave a Reply

Your email address will not be published. Required fields are marked *