As a result, even advisers well-versed on the taper’s requirements will need to commit time and resource to helping clients with high incomes calculate how much they can contribute to a pension.
There is also the question of whether those with threshold earnings of £149,999 should have an annual allowance that is quadruple that of someone with an income of £210,000 a year.
These issues have subsequently resulted in a coalition of advisers, individuals from the pensions industry and doctors aiming to force the government to scrap the TPA. A parliamentary petition started by surgeon Mark Cheetham had accrued more than 11,000 signatures at the time of writing.
Broad reform
But giving the taper the elbow is not without its complications. As Tom Selby, senior analyst at AJ Bell, noted in July, ditching the taper would “blow a £1bn hole in the Treasury’s coffers that would need to be plugged”. Chart 1 shows the recent and estimated tax takes from the policy.
That said, Mr Selby added that analysis of the TPA’s viability could yet trigger a broader review of the wider pensions tax regime, the intention being to both simplify the system and increase the number of people saving for retirement.
Most would agree with Mr Selby’s desire for a simplification of the pensions tax system, but would want to avoid a repeat of the last attempt, which was ironically the origin of the current saga. Pensions simplification, or A-Day as it is commonly known, gave birth to both the annual and lifetime allowances, both of which have subsequently been slashed from their initial levels. The TPA represented a further squeeze on contribution and funding limits.
Steven Cameron, pensions director at Aegon, agreed that the current controversy represented a good opportunity to make pension saving more attractive. “The current consultation is restricted to the NHS pension scheme. However, there are wider lessons to be learnt and we’d welcome a broader review of pensions tax rules, particularly in areas such as the TPA, which are hugely complex,” he said.
“The main aim of pensions tax rules should be to incentivise people to save more for their retirement. Unfortunately, for an increasing number of people, they are having the unintended adverse consequence of discouraging them from taking on additional work or pushing them into early retirement.”
If the decision was made to scrap the TPA, it is likely it would be universally welcomed by the advice industry. But recent shifts by governments have been to squeeze pension contribution limits, rather than loosen them. This suggests few advisers will be holding out hope of the taper being scrapped in its entirety.
