The Daily Telegraph

Armed Forces caught in pensions tax trap

Senior personnel face hefty bills as they are hit by reforms aimed at squeezing top earners

- Political correspond­ent By Danielle Sheridan

THOUSANDS of members of the UK Armed Forces have been trapped by a government pension reform aimed at restrictin­g tax breaks for high earners. Some senior services personnel are even rejecting promotions rather than face a financial loss as a result of the pension rules, said Tobias Ellwood, the former defence minister.

In 2017-18, 3,840 members of the Armed Forces breached their annual tax-free pensions savings limit, exposing them to hefty tax bills. This was a near-quadruplin­g of the 1,010 breaches recorded in 2015-16.

Earlier this month the Treasury said it would review the controvers­ial rules introduced by George Osborne, the former chancellor, which restricts higher earners from putting more than £10,000 annually into their pension pot without facing taxes.

The standard allowance allows people to save £40,000 before the charges apply, but the threshold can fall to as low as £10,000 for those with incomes of more than £110,000.

The figures come as the Government is trying to stem a staffing crisis in the NHS involving doctors reducing their hours to avoid tax bills for breaches of their annual pension allowance.

Mr Ellwood said: “I know good people who have chosen to avoid getting their third star because they are lured by jobs in Civvy Street but also put off by what their new pensions contributi­on will be.

“Ultimately, the absence of realterms increase in defence spending will mean that issues such as this will not be addressed. The reason why people leave the Armed Forces, why retention is difficult, is because of what they’re doing off the battlefiel­d – the welfare side and pay.”

Official Government figures showed that recruitmen­t is increasing but the Army, with 74,400 regular fullytrain­ed troops, is more than 7,000 short of the target figure of 82,000 – a deficit of almost 10 per cent.

Mr Ellwood said if the issue was going to be sorted out it had to be “right across the board for police and for doctors as well as everybody who moves into a pay bracket, which means that they trip this pensions contributi­on”.

Matt Hancock, the Health Secretary, previously wrote in The Daily Telegraph that a “major overhaul” would allow senior doctors in England and Wales to “take on additional NHS work and be fairly rewarded for it without the worry of an unexpected tax bill”. Major General Neil Marshall, chief executive of the Forces Pension Society, told the Financial Times: “This is by no means restricted to the most senior officers or defence medical service personnel only.

“Our research suggests that around 10 per cent of those affected are from the non-commission­ed ranks.”

He added: “The potential impact of the pension tax is rapidly becoming a key factor many service personnel consider when deciding their future commitment to the Armed Forces.”

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