Posted on: 17th Jan 2019
Matt Hancock, secretary of state for health and social care, has called on the chancellor to reform the £1 millionlifetime allowance (LTA). This comes after GPs began to express their concerns with him.
The £1 million pension lifetime allowance
In an interview with Pulse, the health industry trade publication, Hancock said that tax penalties on pension savings that surpass £1 million were the “biggest concern” raised by doctors he had been speaking with.
In 2016, the lifetime allowance was cut from £1.25million to £1 million in 2016. The level of the lifetime allowance correlates well with each year of inflation. So, it is currently set at £1.03 million.
Those who exceed the limit are penalised by a 55 per cent tax rate on any lump sum withdrawals for any pension savings above £1 million. What’s more, they must also pay a 25 per cent tax rate on pension savings above £1 million accessed in any other way in addition to the usual income tax charge at their marginal rate.
Due to these penalties, there have been concerns that, since the new limit came into play, GPs are retiring at an earlier age as they no longer get any value from contributing to their pension scheme.
Speaking to Pulse, Hancock said that he is aware of these concerns and has raised this issue with chancellor Phillip Hammond.
“The biggest concern raised with me is around the tax treatment of. Of course, tax is a matter for Treasury, but I’ve had conversations with the chancellor about looking at the details of tax treatment of pensions because I understand the impact that has,’ he said.
However, Hancock did not reveal whether the conversations only included GP pension tax relief, whether it would extend to the wider reform of the lifetime allowance. There have been plenty of calls to overhaul the pension lifetime allowance since it was cut in 2016. In July 2018, the influential Treasury select committee said that the limit should be completely scrapped. Former pensions minister Ros Altmann also spoke out against the lifetime allowance while in office. However, during her time in office, she was unable to make any changes to the policy.
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