Ooh, Time to Start Speculating About LTA Changes Again

Albermarle

SouthCoastBoy said:

I think it is a dangerous precedence to deal with professions differently with respect to  taxation. Everybody needs to be treated equally, imagine it could be quite a vote loser. 

I suspect only a small minority of the population understands AA and LTA, and most have probably never even heard of them, never mind the implications of any changes. Yes the Opposition could raise it to have a bash,but seems unlikely to be an issue that would swing voters.

leosayer

One solution floated (by the BMA I think) was to change the LTA so that it only applied to DB pensions and the AA so that it only applied to DC/SIPP contributions.

That sounded a clean and sensible approach which means there's no chance it will be implemented.

Pat38493

I must admit that I find some of this stuff about doctors and medical staff being "worse off" if they carry on working, a bit strange, if not disingenuous.

I read up on this topic quite a bit and asked many questions - as far as I could tell, no doctor would be actually worse off in retirement by continuing to work - all of the LTA tax charges and so on are levied on your retirement income or pot above a certain level, with the amounts below the LTA unaffected, and the tax bill only happens when you create a crystallization event.  

As such, it's not really true to say that by continuing to work or working overtime they will be "worse off", in retirement - only that the pension benefit of continuing to work is less, and eventually becomes non existent.  To me thought his doesn't seem like a valid reason to retire earlier if you weren't planning on doing so anyway.

Am I missing something there?

Secret2ndAccount

I think you're looking at it from a DC point of view. This is a DB pension. You can't vary your contributions, or how you draw down. Can't crystallise, or switch around investments between your pot and your ISA. Your most useful tool is actuarial reduction.
If you are 59, you are in line for an actuarial reduction. Work one more year and you are now 50k over the LTA due to the loss of actuarial reduction, add whatever you gain for the extra year of contribution. So you are looking at a 15-20k LTA charge. Any extra pension you receive is likely taxed at 40%. So your monthly pension increase for the extra year amounts to pretty much zero in your pocket.
We generally discuss the NHS pension as being equivalent to about 15% extra salary. So imagine you are mulling over whether to retire or not and your boss comes to you and says "as an incentive to work OMY we will pay you 15% less to do it". I would think that would sway some peoples' decisions. The government's stated aim is to remove the disincentive so that the doctor stays on.

I am not a doctor, and I don't work for the NHS

fizio

Agree with Secret2nd in that what they really mean is that the equation of taking your pension and retiring versus continuing to work starts to favour the former as you get pas LTA. I am not in PS but, even for, I retired early partially because of exceeding LTA. 

gm0

@DoublePolaroid

@alibean121 has it exactly. 

What are the incentives the government actually wants for the 20/10/5 year approaching the zone 2nd career/retirees.    In general.  For those working at a senior level in medicine. Right now.  Does it want them to retire early but stick around as agency contractors (grey hair for hire) to retain a bit of capacity and knowledge while accountability flows down to the next generation. 
The bigger hole to climb back out of is to reset the incentives so that "permie" is more desirable than agency for the individual and the commission and rate bidding up that is going on reverses and reduces.  Along a career arc. Nurses. Doctors both.  Really hard.  Other industries have at times fallen through the contractor use event horizon and its a right !!!!!! to get back out.  Scarcity exacerbates the difficulty.

Incentives design requires NHS a strategic resource plan and the train/retain/import sourcing point of view

Once clear as to intent then you push through the least damaging set of changes to the NHS contracts and procurement rules - from "fill that shift at any price" (like the marginal gas price).  And alongside fiddle the tax code also to drive the incentive on senior doctors you want to stay. Monitor and adjust every couple of years as the NHS resourcing story unfolds.

For me "least damaging" likely does imply some reducing of retirement of needed experience. As part of actions to prevent collapse and to attack backlogs.  Against uncertain times re respiratory illness demand and much else.  Acute catchup funding blocking social care funding progress is a huge issue which feedbacks to bed blocking, ambulance service failure and waste.  Let's see what the new minister and NHS CEO have to say about that in the next couple of months. Sadly a lot is beyond the next election so it may get neglected and pushed back again due to the political logic of it being parked behind acute catchup in theory.

When you have materially increased doctor and nurse and medical tech training for a while (decade or so) and got staff import as perm (visas, leave to remain etc). working better again. Only then you can attack the unit cost of senior doctoring (inputs, leverage, automation).  Can't do that now. Should have upped supply a long time ago.  But absent that today is still a good day to begin.

Beyond that going back to the pensions element - where possible

1 Avoid sending bills to the future.

2 Progress the general demise of DB (long overdue) and apply RPI/CPI and other crimping of deferred and unknown future liability. Force that through alongside inflationary and any here and now pay rises. Within the overall desired incentive.

3 Wherever possible the "tax code" isn't a medicine special.  So do what you can inside the NHS contract.

4 Tax code changes are horizontally fair (or at least "do no harm" i.e. not worse than today).

This last one means it doesn't make the DB DC imbalance even worse in favour of DB in terms of tax penalties.  Flatter is better.  What's that thing doctors say.  First do no harm.  A higher than 20x multipler - right now seems counterproductive and yet there it is - that's what the data says should happen. Not a lower multiple or a doctor special extra tax break for pensions accrual. 
Nonetheless in framing the "debate" about it should not be forgotten just how very generous this is.  Asking the DC pensioner to pay more tax (and more LTA penalty than a medic) and now to have the tax code further tilted against them now to prop up the medics some more - via a special additional tax break - looks like a very unattractive horse pill for the rest of us to attempt to swallow.  But DC LTA is a niche group, diffuse and not politically salient.  Media won't care or do any actual thinking.  Doctors good. Bankers bad. Twitter says gubberment wrong and evil.  Repeat daily or as needed.

On the contract change - a logical and entirely valid BMA strategy would be to attempt to bog them down up to the next election and time it out. So a tax code tweak route is likely at some point if not today as this can be forced through the lords as a finance bill. And doesn't involve negotiation with the politically hostile BMA.  Incentives yet again.

saucer

Malthusian 

I think the threat of the 70% charge over the LTA  (while continuing to pay 13.5% contribution of salary in), being lifted would make people who would have considered retiring early think again. 

I think you are very probably right - although the LTA charge is 25% + income tax or 55%, not 70%…

Thank you…I don’t know where I got 70%! You make some excellent points

Pat38493

Secret2ndAccount said:

I think you're looking at it from a DC point of view. This is a DB pension. You can't vary your contributions, or how you draw down. Can't crystallise, or switch around investments between your pot and your ISA. Your most useful tool is actuarial reduction.
If you are 59, you are in line for an actuarial reduction. Work one more year and you are now 50k over the LTA due to the loss of actuarial reduction, add whatever you gain for the extra year of contribution. So you are looking at a 15-20k LTA charge. Any extra pension you receive is likely taxed at 40%. So your monthly pension increase for the extra year amounts to pretty much zero in your pocket.
We generally discuss the NHS pension as being equivalent to about 15% extra salary. So imagine you are mulling over whether to retire or not and your boss comes to you and says "as an incentive to work OMY we will pay you 15% less to do it". I would think that would sway some peoples' decisions. The government's stated aim is to remove the disincentive so that the doctor stays on.

I am not a doctor, and I don't work for the NHS

I am not sure exactly what you mean by an actuarial reduction - do you just mean that the pension per year is less because the person didn't reach NRA and therefore their yearly pension won't hit the LTA yet?

If so I understand that, but also as I understand, any LTA tax charge can be taken on the pension side of the pot and will effectively reduce your annual pension by a certain amount.

I take your point that someone might decidde to retire earlier if they realised they were not accruing any further benefit to their pension and their pension would be identical, but this assumes that their main objective in life is to retire.  The other point I guess is that they can retire from the NHS but take up private work or even come back to the NHS as a contractor.

I think my issue is more with the way it was portrayed in the media a year or two back where it was kind of implied that they were forced to retire because if they retired later, they would receive a huge tax bill which they wouldn't have the cash to pay - by my understanding this is not true as they can ask the tax to be deducted from their DB pension pot thereby reducing their annual pension.

NedS

Pat38493 said:

Secret2ndAccount said:

I think you're looking at it from a DC point of view. This is a DB pension. You can't vary your contributions, or how you draw down. Can't crystallise, or switch around investments between your pot and your ISA. Your most useful tool is actuarial reduction.
If you are 59, you are in line for an actuarial reduction. Work one more year and you are now 50k over the LTA due to the loss of actuarial reduction, add whatever you gain for the extra year of contribution. So you are looking at a 15-20k LTA charge. Any extra pension you receive is likely taxed at 40%. So your monthly pension increase for the extra year amounts to pretty much zero in your pocket.
We generally discuss the NHS pension as being equivalent to about 15% extra salary. So imagine you are mulling over whether to retire or not and your boss comes to you and says "as an incentive to work OMY we will pay you 15% less to do it". I would think that would sway some peoples' decisions. The government's stated aim is to remove the disincentive so that the doctor stays on.

I am not a doctor, and I don't work for the NHS

I am not sure exactly what you mean by an actuarial reduction - do you just mean that the pension per year is less because the person didn't reach NRA and therefore their yearly pension won't hit the LTA yet?

Actuarial reduction is the amount that a pension is reduced by taking it early, before the NRA. The contribution towards the LTA is 20 times the amount of the pension when first put into payment. By taking it early, and by a reduced amount, the contribution it makes towards the LTA will also be reduced. Taking a DB pension early may make the difference between staying under the LTA or exceeding it.

Note that taking a pension early with actuarial reduction is not designed to financially penalise you - in theory it should be cost neutral to both the scheme member and the scheme. Assuming the scheme member lives to an average age, they will receive the same amount of benefits, just that they will receive a little less each year for a little longer having started their payments a little earlier than NRA.

zagfles

Pat38493 said:

Secret2ndAccount said:

I think you're looking at it from a DC point of view. This is a DB pension. You can't vary your contributions, or how you draw down. Can't crystallise, or switch around investments between your pot and your ISA. Your most useful tool is actuarial reduction.
If you are 59, you are in line for an actuarial reduction. Work one more year and you are now 50k over the LTA due to the loss of actuarial reduction, add whatever you gain for the extra year of contribution. So you are looking at a 15-20k LTA charge. Any extra pension you receive is likely taxed at 40%. So your monthly pension increase for the extra year amounts to pretty much zero in your pocket.
We generally discuss the NHS pension as being equivalent to about 15% extra salary. So imagine you are mulling over whether to retire or not and your boss comes to you and says "as an incentive to work OMY we will pay you 15% less to do it". I would think that would sway some peoples' decisions. The government's stated aim is to remove the disincentive so that the doctor stays on.

I am not a doctor, and I don't work for the NHS

I am not sure exactly what you mean by an actuarial reduction - do you just mean that the pension per year is less because the person didn't reach NRA and therefore their yearly pension won't hit the LTA yet?

If so I understand that, but also as I understand, any LTA tax charge can be taken on the pension side of the pot and will effectively reduce your annual pension by a certain amount.

I take your point that someone might decidde to retire earlier if they realised they were not accruing any further benefit to their pension and their pension would be identical, but this assumes that their main objective in life is to retire.  The other point I guess is that they can retire from the NHS but take up private work or even come back to the NHS as a contractor.

I think my issue is more with the way it was portrayed in the media a year or two back where it was kind of implied that they were forced to retire because if they retired later, they would receive a huge tax bill which they wouldn't have the cash to pay - by my understanding this is not true as they can ask the tax to be deducted from their DB pension pot thereby reducing their annual pension.

It was more of a problem before they increased the annual allowance taper threshold a couple of years ago, when some doctors were getting stung by both the AA and LTA, which really did mean some were working for almost nothing.