It is vital to take pension issues seriously – especially with our ageing population. This week’s Telegraph report about doctors quitting general practice in their fifties, partly because of new pension rules, is a stark reminder of the problems created by continued cuts in pension allowances.
With increasing numbers of older people in the country, the demand for medical staff is likely to increase sharply, and we need as many of our most experienced doctors to stay in practice as possible. Surely we actually want to incentivise them to keep working longer, not encourage them to retire early by imposing draconian taxes on their pensions.
Of course, this does not just apply to GPs. The latest reduction in the Lifetime Allowance – the amount the Inland Revenue allows you to have in your pension scheme before triggering an extra tax – will affect thousands of long-serving staff across the public sector. Surgeons, senior police chiefs, firefighters and head teachers are similarly impacted. According to independent financial advisers, there are top people in their fifties across the country who may retire early to avoid this extra charge – which can be up to 55 per cent.
With increasing numbers of older people in the country, the demand for medical staff is likely to increase sharply, and we need as many of our most experienced doctors to stay in practice as possible. Surely we actually want to incentivise them to keep working longer, not encourage them to retire early by imposing draconian taxes on their pensions.
Of course, this does not just apply to GPs. The latest reduction in the Lifetime Allowance – the amount the Inland Revenue allows you to have in your pension scheme before triggering an extra tax – will affect thousands of long-serving staff across the public sector. Surgeons, senior police chiefs, firefighters and head teachers are similarly impacted. According to independent financial advisers, there are top people in their fifties across the country who may retire early to avoid this extra charge – which can be up to 55 per cent.
Watch | The NHS crisis in numbers
01:07
The
shrinking Lifetime Allowance now functions as a stealth tax on the most
senior personnel. There has been constant tinkering with pension rules,
and they are complex. But continual reductions in the Allowance, the
latest of which took effect this week, have lowered the threshold at
which pensions are taxed from £1.8 million in 2012 to £1 million today.
That may sound like a huge sum, but the new measure will actually hit
vast numbers of long-serving senior and middle-ranking workers because
of the crude way the threshold is calculated.
Essentially,
the Treasury takes your projected annual pension at the time you begin
receiving it and multiplies it by 20. If you are on course for a
£50,000-a-year pension by the time you’re 60, you will know in advance
that you will come in over the limit. In these circumstances, it makes
sense to retire before you reach that point, which you can do at any age
from 55, and take a reduced pension (the earlier you retire, the lower
the pension).
This lets you avoid hitting the Lifetime Allowance, because the new rules don’t take into account that this lower pension would be paid for more years. They ignore the fact that you would probably receive the same amount – or even more – over your lifetime. By taking the lower pension, you can avoid the draconian pension tax, and still get the same expected pension payments in the end. This encourages GPs and senior workers to retire much younger than they otherwise might.
Telrgraph
This lets you avoid hitting the Lifetime Allowance, because the new rules don’t take into account that this lower pension would be paid for more years. They ignore the fact that you would probably receive the same amount – or even more – over your lifetime. By taking the lower pension, you can avoid the draconian pension tax, and still get the same expected pension payments in the end. This encourages GPs and senior workers to retire much younger than they otherwise might.
Telrgraph
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