When the tapered annual allowance was introduced in 2016 we knew that it would significantly affect the tax position of every middle to senior consultant in the NHS. This year the workforce hit breaking point as doctors impacted by the scheme took the logical step of reducing additional hours or even choosing to retire early.
In his first few weeks as Prime Minister, Boris Johnson announced a new consultation into increasing flexibility for pension contributions and/or changing contributions into salary where possible.
In summary, the changes proposed mean that consultants will be able to:
- Decide upon their desired accrual level (before 1 April each year) and pay the corresponding contributions. This will be in 10 per cent increments, eg, 30 per cent accrual with 30 per cent contributions.
- Review their pension growth towards the end of the scheme year when their likely total earnings for the period are more accurate. They could then adjust their accrual / contribution level accordingly.
News that the government is no longer hiding from the very real problems that these punitive tax charges are having on the NHS, on patients and on individual doctors, will come as a relief to many. However, should these plans go ahead (the consultation is due to end on 1st November), they will undoubtedly add significant extra layers of complexity for busy medics keen to just get on with the day job.
Even the consultation document states ‘the department is concerned that the complex interaction of tax, pay and pensions can take considerable amounts of individual time and resources to manage’.
As a starting point for any medic concerned by pension tax, we would recommend requesting your annual allowance pensions savings statement which is now ready to obtain from the NHS Pensions Agency. You can then use this as a basis for discussions with your financial planner to ascertain your current position and the likely tax implications going forward.
It is best to make the request for your statement as soon as possible – do not wait for it to be sent to you – as lengthy delays can occur and we have known many of the statements to contain substantial computer-generated errors.
Remember that HMRC calculates the contributions for a defined benefit scheme such as the NHS very differently to that of a private pension. The figures are based on the deemed ‘growth’ of the pension in that year with an allowance made for inflation rather than the actual contributions. The statements can therefore be difficult to understand and mistakes can go unnoticed by the untrained eye.
If you are in any doubt about your own position, please contact one of our adviser team who are always willing to help and to explain matters clearly and simply. Call us on 020 7636 7006.