My Lords, the amendment from my noble friend Lady Neville-Rolfe would commit the Secretary of State for Work and Pensions to review the tapered annual allowance on tax-relieved pension savings and require the Secretary of State to set out how pension schemes could mitigate any adverse effects of the taper. On the other hand, the amendment from the noble Lord, Lord Warner, would commit the Secretary of State for Work and Pensions to make regulations to require the NHS pension schemes to reimburse members for pension tax charges and, in particular, annual allowance charges.
I will set out where matters currently stand on this. First, in recognition of the impact that the tapered annual allowance is having for some doctors this year, NHS England has announced—as has been mentioned —a special arrangement for 2019-20 only, which doctors in England can use to ensure that they will not be worse off as a result of taking on extra shifts this tax year. This arrangement allows senior clinicians to defer an annual allowance charge through scheme pays. Their NHS employer will make a contractually binding commitment to pay a corresponding amount on retirement, ensuring that they are fully compensated in retirement for the effect of the scheme-pays deduction on their retirement income.
Health is a devolved matter. This special arrangement applies only to England, but we are aware that the Welsh Government and NHS Scotland have also put arrangements in place for the current tax year.
The Government most certainly recognise that urgent action is needed to resolve the pensions tax issue, which has caused some doctors to turn down extra shifts for fear of high tax bills. We are committed to ensuring that hard-working NHS staff do not find themselves reducing their work commitments due to the interaction between their pay, their pension and the relevant tax regime. That is precisely why the Government are taking forward their manifesto commitment to carry out an urgent review of the pensions tapered annual allowance, to make sure that doctors spend as much time as possible treating patients. This builds on the Treasury’s review into the effect of the tapered annual
allowance on public service delivery, announced last August. The Government have announced that these reviews will report at the Budget on 11 March.
I understand that the ongoing reviews have received evidence from the British Medical Association, the Academy of Medical Royal Colleges and other representative organisations from across the public and private sectors. The Economic Secretary to the Treasury has held round-table discussions with key health sector stakeholders, as well as representative organisations across the public sector. The evidence provided will ensure that the Government can consider fully the impact of the tapered annual allowance and its effects on the NHS and other public services.
The amendment from my noble friend Lady Neville-Rolfe would have the Government commit to yet another review of matters relating to the tapered annual allowance. I hope she will accept that there is no need for a further exploration of this matter when the two reviews are ongoing and have not yet concluded, especially as those reviews will report shortly.
The amendment proposed by the noble Lord, Lord Warner, would commit the NHS pension scheme administrators to reimburse their members to the extent they had incurred an annual allowance tax charge. The practical difficulty with this, which I am sure the noble Lord does not intend, is that reimbursement from the scheme for tax charges could trigger an unauthorised payments tax charge for the member and a scheme sanction charge for the scheme. Noble Lords will appreciate that this is a very complicated area of tax law and, as I have said, could result in further unforeseen tax charges arising.
The noble Lords, Lord Warner and Lord McKenzie, referred to the interest rate being applied in this area. Perhaps I could just explain the background to this. HMRC rules require that when scheme pays is used to pay a tax charge, an actuarially fair reduction is made to the value of the pension. The discount rate used to value this reduction for public service pension schemes is the SCAPE discount rate plus CPI. The SCAPE discount rate reflects the Office for Budget Responsibility’s forecasts for long-term GDP growth in line with established methodology. Due to recent changes to the SCAPE rate and the CPI, the scheme-pays discount rate has fallen in 2019 to 4.8%.
My suggestion to my noble friend and the noble Lord, Lord Warner, is that it is preferable to wait for the outcome of the two reviews, which are ongoing but have not yet concluded. As I mentioned, they will report shortly, on 11 March. Ultimately, this is a matter for my right honourable friend the Chancellor. I am sorry to have to leave matters in the air, but I hope that my noble friend and the noble Lord will take away from this a good degree of reassurance that the Government are taking seriously the question of what impact the tapered annual allowance is having on NHS pension scheme members and that reviews into this matter are already under way.
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