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Chancellor defends 'effective' pension allowances

The lifetime and annual allowances are an 'effective' way of getting high earners to pay their fair share of the tax burden according to chancellor Philip Hammond

Chancellor defends 'effective' pension allowances

Chancellor Philip Hammond has defended George Osborne's reforms to pension saving allowances as an 'effective' way of ensuring high earners pay their fair share of the tax burden.  

Recent reports have highlighted how Osborne's decisions to cut lifetime and annual allowance limits have led to NHS workers avoiding extra shifts to avoid large tax bills

Under current rules, savers must pay tax penalties if they breach the £1.055 million lifetime allowance (LTA) or £40,000 annual allowance for pension savings. People earning more than £150,000, including many doctors, also face penalties if they breach lower annual limits that taper down to as little as £10,000. 

Yesterday the Financial Times reported the British Medical Association has warned the government doctors are reducing hours on an 'unprecedented scale' to avoid decreasing their annual allowance and incurring heavy tax penalties.

However, when Hammond (pictured) was quizzed on pension allowances by Conservative MP Steve Baker at a Treasury Committee hearing on Wednesday, he defended the tax charges. 

'I know that people who are paying it do not like paying it, but they are paying it as part of a deliberate strategy to distribute the burden of fiscal consolidation fairly,' Hammond said. 

He argued the changes ensured those on higher incomes bore a larger burden than those on lower incomes. 

'My predecessor, during a period of significant fiscal consolidation, was clear that his intention was to ensure that those on the highest income bore more of a burden than those on lower incomes. It is surprisingly difficult to find ways to give effect to that in the tax system.

'One of the effective ways that he found was to introduce the annual allowance and the LTA charge. They had a significant and beneficial effect to ensure an equitable distribution of the burden of fiscal consolidation.'

Hammond added he was working with health secretary Matt Hancock to find a solution to the problem for NHS workers. 

'Of course, we have to look at the cost to the public purse and the cashflow implications in pay-as-you-go pension systems. Those are also very important, but I am hopeful that we will find a solution that allows us to introduce additional flexibility into NHS pension schemes for highly paid NHS staff,' he said. 

Read more: Lighthouse told to pay NHS worker's pension tax bills

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