NHS Pension Scheme: Tapered Annual Allowance

Part of the debate – in Westminster Hall at 11:15 am on 2nd April 2019.

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Photo of Jackie Doyle-Price Jackie Doyle-Price The Parliamentary Under-Secretary for Health and Social Care 11:15 am, 2nd April 2019

It is a pleasure to serve under your chairmanship, Sir Roger. I thank my hon. Friend Paul Masterton for securing the debate; he made a characteristically thoughtful contribution.

We are the custodians of taxpayers’ money and need to manage the country’s finances in a way that gives value for money and allows us to live within our means. We also need to accept that when we make changes to the tax system, it changes people’s behaviour. I am grateful for the opportunity to look at these issues through the prism of the impact on the workforce in the national health service.

As my hon. Friend said, the annual allowance is a fiscal measure that operates across all pension schemes in both the public and private sectors. Alongside the lifetime allowance, the Government keep this measure under review to ensure that the benefit of tax relief on pension scheme contributions remains affordable. It is in fact one of the most expensive tax reliefs in the personal tax system. In 2015-16, income tax relief and employer national insurance contributions relief cost the Exchequer around £50 billion, with around two thirds going to higher-rate taxpayers. That is an important point to bear in mind, because we need to ensure that our tax system is progressive and managed efficiently. We will want to look at tax reliefs that favour the highest-rate taxpayers to ensure that our overall burden of tax is appropriate.

The reforms made to the lifetime and annual allowances in the previous two Parliaments are expected to save over £6 billion a year, and are necessary to deliver a fair system and to protect public finances. To ensure that the benefit the wealthiest pension savers receive is not disproportionate to that of other pension savers, the Government restrict the amount of tax relief available. The annual allowance does not taper below £10,000, and fewer than 1% of pension savers will have to reduce their saving or face an annual allowance charge because of this policy.