Many doctors do not believe their total pension savings could reach the new lower lifetime allowance figure of £1.25million. However, many senior doctors will be affected by the rate change but may be unaware of the complex calculations used by HMRC to value pension benefits.

Case study: Will Dr Smith be caught by the new lifetime allowance rate?

Dr Smith is an NHS consultant with a pensionable salary of £115,000.

He has been a member of the NHS scheme (1995 section) for 33 years and has also purchased some added years meaning in total he currently has 36 years’ service.

He is due to reach the age of 60 in two years’ time. Dr Smith has also contributed to private pensions although he stopped paying in some years ago. The current fund value is £175,000.

Dr Smith does not think the lifetime allowance change will affect him but he is wrong.

A recent pension statement obtained from his trust shows that Dr Smith has accrued an annual pension of £51,750 and a lump sum on top of this of £155,250.

However, he doesn’t appreciate that HMRC value these benefits at £1,190,250 (20 x £51,750 + £155,250). Add on the £175,000 value of his private pension to this and his pot is already worth £1,365,250 – which is above the new limit from April onwards.

Without protection the excess over £1.25m could be taxed at up to 55%.

What You Should Do Now:

To avoid a substantial tax bill it is imperative you check the value of your pension using the same methods that HMRC will employ. No time to do this? We can help you. Call one of our expert advisers at Cavendish Medical on 020 7636 7006.