3,840 armed forces members breached annual allowance in 2017/18

3,840 members of the armed forces breached the annual allowance in 2017/18, a Freedom of Information request has found. Quilter, which submitted the request, stated that the current pension tax rules introduced under former Chancellor George Osborne, are impacting the armed forces as well as judges and the NHS. The number of breaches is a fourfold increase on the 1,010 personnel who breached the allowance in 2015/16, although less than the peak in 2016/17 when 3,920 breached the allowance. Quilter financial planner David Gibb said the “obscure” pension tax rules have “spiralled into a staffing crisis across public sector employers”.  Armed Forces Pension Calculator

Punitive

“This is all down to the unintended consequences of a poorly thought through tax reform designed to reduce government expenditure on pension tax relief for higher earners. What policymakers failed to recognise was the disastrous knock-on effect this would have on public sector pension schemes in particular, where the nature of pension entitlement calculations means that employees can face punitive tax bills running into the thousands. “Government ministers seem determined to try and keep the tapered annual allowance in place and create workarounds in public sector schemes. This is the wrong approach and the Treasury should scrap the taper altogether as a matter of urgency,” he said. 

Restricts

The annual allowance affects individuals saving into a pension and restricts the amount they can save in any given year before facing a tax charge. The annual limit was in excess of £250,000 as recently as 2010/11. But it has since been cut dramatically and now stands at just £40,000. Contributions in excess of the annual allowance are subject to a tax charge, which is borne by the individual or paid for under a ‘scheme pays’ arrangement, which leads to a reduction in pension benefits. For higher earners, an additional ‘taper’ brings the allowance down further. Introduced in 2016, the policy sees savers lose £1 from the annual allowance for every £2 of remuneration over £150,000, with complex rules involved in calculating the ‘threshold’ and ‘adjusted’ income to determine who is subject to the taper. It reduces down to just £10,000 for individuals with total earnings of £210,000 or more. 

Solution

Earlier this month, Major General Neil Marshall, chief executive of the Forces Pension Society, and was previously one of the UK’s highest-ranking army officers, called for the tapered annual allowance to be scrapped. He also urged the government to extend its proposed solution to fix the NHS pensions taxation crisis across the public sector.