Ross Brooke Dental examines abolishing of “unfair” pension penalty
NewsPosted by: Dental Design 21st March 2023
The apparent simplification of pension rules in the Spring Budget has been welcomed by Linda Giles and Nathan Poole of Ross Brooke Dental who believe that the exodus of senior clinicians from the NHS to avoid a tax penalty will be halted.
Chancellor Jeremy Hunt took everyone by surprise with his announcement that the Lifetime Allowance (LTA) – the limit on the value of an individual’s pension pot – is to be scrapped from April 6.
Rising inflation was pushing the value of pensions of many senior clinicians above the circa £1.07m currently permitted, giving rise to a tax charge of up to 55%. The move should stem the flow of dentists and doctors leaving the NHS prematurely.
Some sort of measure to minimise the punitive effect of both the Annual Pension Savings Allowance (AA) and the LTA was widely anticipated. “What took everyone by surprise,” said Linda Giles, “is that the LTA was simply abolished across the board. We were surprised but this is good news for dentists.”
Meanwhile, the Chancellor increased the AA, the maximum that can be saved tax-free into pensions in a single year, from £40k to £60k, also from 6 April 2023.
Further, the extension of the income level at which the AA is tapered has increased and the fully tapered AA increased from £4k-£10k. Many of our dentist clients will welcome these changes.
Nathan added: “I think the problem with the pension rules is that the tax charge was being applied to many people who had worked hard for the NHS earlier in their careers and there was nothing they could do about it. This was effectively retrospective taxation and it seemed unfair.”
Another reform in the Budget is to peg the tax-free lump sum that can be drawn down on retirement to 25% of the current LTA, which is circa £270,000. Clients with existing pension protection are likely to be able to retain their enhanced lump sum entitlement – but should discuss their situation with their IFA.
