If you have not already received your annual pensions statement for 2020/21 from the NHS Pensions Agency, you should actively request it now. This document is essential to establish whether you are likely to be paying substantial tax charges on your pension savings.
The ‘annual allowance’ limits the amount of tax-free pension savings which can be accrued per year to £40,000. In autumn every year, the Pensions Agency issues statements detailing doctors’ annual contributions for the preceding tax year but only if the ‘deemed growth’ in their pension is more than £40,000.
Those who breach the harsher ‘tapered’ annual allowance may not receive a statement at all as the NHS Pensions Agency is not duty bound to issue statements to individuals breaching this particular cap.
The ‘tapered’ annual allowance applies to pension savers with a ‘threshold income’ of over £200,000 and reduces the limit on a sliding scale to as low as £4,000 for the highest earners. The threshold income includes earnings from all sources so this might include NHS salary, private practice or academic work, investment income and buy-to-let incomes.
It is easy to wrongly assume that if you do not receive a statement, you have not breached the annual allowance which can cause significant issues. There are several reasons for not receiving a statement – firstly, you may not have breached the standard allowance or the Pensions Agency has not received your correct data.
Remember also that the Agency is not monitoring your contributions to any private pensions which will also count towards your specific level of allowance.
Those breaching the annual allowance can apply for the NHS to pay the tax charge under Scheme Pays in exchange for reduced future benefits. The application for Scheme Pays is normally 31 July each year but for the 2019/20 tax year, this has been extended to 31 March 2022. There have not been any announcements regarding the deadline for 2020/21 which currently remains at 31 July 2022. There are also other payments options which should be considered.
Pensions are not getting any less complex – there are new rules and regulations every few months and each one can have an impact on your calculations and your future plans. Please give yourself enough time to ask for a statement (there can be lengthy delays at the Agency) and have the figures thoroughly checked by experts well versed in examining the fine detail. Every year we witness statements with small errors such as wrong pay levels that can cause large mistakes if left unchallenged.
For help with your own pension challenges, please telephone our adviser team on 020 7636 7006.