Doctors shouldn’t get special treatment for their pensions

Doctors whose pensions are too big want an exemption from the lifetime allowance. They shouldn’t get it, says Merryn Somerset Webb.

190130-doctors-pensions

Doctors: top sorts, but pension reform shouldn't just be for them

Pity the poor doctors. Their pensions are too big. They have no choice but to retire. You may have read this sorry tale all over the place over the last few weeks, thanks to a demand from the British Medical Association (effectively a union for doctors) demanding that the government lift the pensions contribution annual allowance, which regulates how much we are all allowed to pay into our pensions every year (£40,000 tapering down to £10,000 for those who earn more than £150,000), for the medical profession. Why?

The answer is that the contributions made to their pension funds are such that even on a salary of £125,000 they can end up over-contributing, says the Financial Times, and being hit by a tax bill (you pay an extra tax on anything that goes in over your allowance) payable in the year it is incurred.

They're also increasingly coming up against the lifetime allowance (LTA) which governs how big your pension can be on retirement (£1.055m at the moment). The result is that doctors are apparently cutting their hours and even retiring early to cut their pension contributions, and hence their upfront tax bills.

I have some sympathy with this but not much. Let's not forget that the reason so many doctors hit the limits is because their pension provision is so generous compared to that of the rest of us. Nor that they do not have to pay up front you and I would have to, but the public sector runs a system whereby the pension scheme can pay the tax and then deduct it from the pension when the doctor retires.

You could argue that the system is all wrong (and we often have) but if the allowances are wrong it surely it doesn't make sense to react by exempting those with the very best pensions from them particularly when the UK's taxpayers are already a little stretched.

Other solutions are to make the pensions offered to doctors (and indeed other public-sector staff) less generous (that would deal with the early retirement problem...) or to reform the allowance system in its entirety. We'd prefer the latter (we'd love everyone to have brilliant pension provision) but if it would help the NHS out, we'd be happy to go with the former.

As Hargreaves Lansdown's Tom McPhail points out, "members of defined-benefit pension schemes (such as public-sector workers, including doctors) already enjoy a substantially higher pension ceiling than members of money-purchase schemes." That's the type most private sector workers have been condemned to relying on. Maybe pity them.

Recommended

Tax return deadline extended – but don't forget to file
Income tax

Tax return deadline extended – but don't forget to file

HMRC is being slightly more lenient about tax returns this year, but falling behind will still incur hefty fines.
25 Jan 2022
Made money in cryptocurrencies? Don’t forget to pay your taxes – in sterling
Bitcoin & crypto

Made money in cryptocurrencies? Don’t forget to pay your taxes – in sterling

Speculating on cryptocurrencies is akin to gambling in all but one respect, says Merryn Somerset Webb: you must pay tax on any gains, and you must pay…
18 Jan 2022
Make sure your pension savings don't breach the lifetime allowance
Pensions

Make sure your pension savings don't breach the lifetime allowance

Don’t forget the lifetime allowance when reviewing your pension planning – breaching it could prove very costly, says David Prosser.
7 Jan 2022
How to track down your lost pension savings
Pensions

How to track down your lost pension savings

Some straightforward detective work could reunite you with pension savings from previous jobs that you may have mislaid.
20 Dec 2021

Most Popular

Shareholder capitalism: why we must return power to listed companies’ ultimate owners
Investment strategy

Shareholder capitalism: why we must return power to listed companies’ ultimate owners

Under our system of shareholder capitalism it's not fund managers, it‘s the individual investors – the company's ultimate owners – who should be telli…
24 Jan 2022
Three innovative Asian stocks to buy now
Share tips

Three innovative Asian stocks to buy now

Professional investor Fay Ren of the Cerno Pacific Fund highlights three of her favourite Asian stocks to buy now
24 Jan 2022
Ask for a pay rise – everyone else is
Inflation

Ask for a pay rise – everyone else is

As inflation bites and the labour market remains tight, many of the nation's employees are asking for a pay rise. Merryn Somerset Webb explains why yo…
17 Jan 2022