Pension pot woe for doctors and heads

MIDDLE-CLASS professionals building up large pension pots will be hit by heavy taxes in a move branded ‘complete lunacy’ by the doctors’ union.

The pension lifetime allowance – the amount you can save for retirement before incurring large charges – is being frozen at just over £1million.

It had been due to rise with inflation, allowing workers nearing the end of their careers to put away another £88,900 by the end of the current Parliament. But the five-year freeze means anyone who saves more than the threshold of £1,073,100 will have to pay 25 per cent tax on pension payments, and a 55 per cent levy if they take a lump sum.

Anyone who had put away £100,000 above the limit and wanted to receive it as a lump sum, for example, would have to pay £55,000 in tax.

Budget documents show the move could earn the Treasury £150million by 2022-23 and £300million by 2025-26.

It has previously been estimated that an extra 10,000 people will have to pay the tax as a result of the freeze. But the Treasury admits there is likely to be a ‘behavioural effect whereby some taxpayers will respond by altering their pension contributions’.

The move will most likely affect senior public sector workers who have generous defined benefit pension schemes.

Vishal Sharma, chairman of the British Medical Association’s pensions committee, predicted the stealth tax raid would encourage experienced doctors to retire early – damaging the NHS.

He said: ‘This is going to have a massive detrimental impact on the NHS just at the time when doctors are needed the most. This is complete lunacy especially as it will not generate much additional revenue – people will retire sooner to not pay the tax. [It] amounts to an unfair tax that disproportionately affects doctors, and will cause many to leave the NHS or reduce their hours.’

A BMA survey found that 70 per cent of respondents would be more likely to retire early if the allowance is frozen.

Gareth Jenkins from Zurich Insurance called the raid on pensions ‘punishing’.

‘Freezing the lifetime allowance is nothing less than a tax on growth,’ he said. ‘This will hit people on middle incomes who save hard or invest wisely, including NHS doctors and headteachers.

‘With the threshold frozen, more people will be dragged into the tax net, as inflation and wages continue to rise.’