Multiple tax treatments create yet another gap
Editorial: Never underestimate the power of well-organised workers providing a public service, even when faced with a chancellor whose conservative idols took on the trades unions.
Sajid Javid is No.11’s new occupant after Boris Johnson’s reshuffle and, as a devotee of both Margaret Thatcher and Ayn Rand, might be thought unlikely to kowtow to the demands of the British Medical Association.
Given Mr Johnson’s enthusiasm not just for increased public spending but also tax cuts, any fiscally credible government might well have to protect its income in less visible areas such as pensions
But kowtow he has, announcing both greater flexibility on defined benefit accrual for NHS staff and plans to review the tapered annual allowance for pensions tax relief as it affects public sector workers. You can read more here.
Perhaps it should not be surprising that a Tory government is considering unwinding a complex rule that forces higher earners to pay the vast majority of tax paid on pension contributions.
However, the interesting question is not why, but what next? Given Mr Johnson’s enthusiasm not just for increased public spending but also tax cuts, such as increasing the higher rate threshold for income tax, any fiscally credible government might well have to protect its income in less visible areas such as pensions. Do not be surprised to see the taper replaced by a lower overall annual allowance.
That in itself is no bad thing, and broadly mirrors the calls of many industry experts to reform a pensions tax system whose principal failing is complexity rather than a lack of generosity. Indeed, former pensions minister Sir Steve Webb and the Association of Consulting Actuaries have long been calling for the taper to be scrapped in exactly this way.
Carve-outs create injustice
More worrying is the new consultation’s indication that it will focus on “how the tapered annual allowance supports the delivery of public services such as the NHS”.
This raises the worrying prospect that a government anxious to stem the flow of doctors retiring early, but preoccupied with managing the impact of whatever Brexit we end up with, will create a carve-out and legislate on cases rather than principles.
Public sector workers not only enjoy DB provision that has all but vanished in the private sector, but would now also be treated as ‘more valuable’ citizens by the tax system. Hardly the system a small-government, free-market chancellor would wish to create, but one that could nonetheless come to fruition without due care.
Carve-outs create injustice and gaps in the way individuals are treated, and our next cover feature makes plain just how wide-ranging these effects can be.
The pensions gender gap has often been thought of as an inevitable consequence of the gender pay gap, and therefore many in the industry have absolved themselves of responsibility for its enduring presence.
What our analysis highlights is that it is the financial habits that result from women’s typical working lives that impact their retirement adequacy, as much as any difference in the level of remuneration awarded to women.
Good financial habits being something those with a fiduciary duty can and should look to influence, I hope our exploration of the steps already being taken by some schemes will spark renewed debate about the gender gap in pensions.