By Leslie Berry
Senior doctors could miss out on substantial pension saving tax breaks unless they take action to beef up their retirement pots.
Financial advisers fear higher rate tax relief could be abolished – leaving private consultants and GPs with many thousands of pounds less in their nest egg than they anticipated.
Speculation has been mounting into whether higher rate pension tax relief will be abolished after the general election following Pensions Minister Steve Webb’s announcement that he would like to introduce a flat rate of tax relief for pension savings at just 33%.
All pension savers are entitled to tax relief on their contributions which is currently paid at their highest rate of income tax – 40 or 45% for most senior doctors.
When they retire, they pay tax on withdrawals which could be just 20% depending on their personal circumstances.
Patrick Convey, technical director of specialist financial planners Cavendish Medical, warned: ‘While this is a subject often debated before election campaigns, these latest proposals carry more weight than previously and have been building for some time.
‘Note that NHS doctors currently pay their NHS Pension contributions through gross pay, so receive full tax relief – up to 45% – at source. This will therefore be a considerable change if the proposals go ahead.
‘It is up to the individual to ensure they are making the most of current tax relief opportunities before any detrimental amendments are introduced.’
Mr Webb has long championed a flat rate of tax relief on pensions. He said: ‘I would be very surprised if the next government leaves [higher rate tax relief] alone. They will be looking for money … any chancellor will have to look at this pool of money. I’ve found the idea being increasingly well-received, both within and beyond the party.’
His announcement indicates a possible Lib Dem policy on pensions in their election manifesto.
Labour has already promised to cut pension tax relief for those earning £150,000 from 45% to 20%.