Some doctors have received letters from the NHS Pensions Agency detailing their annual pension savings for the tax year 2013/14. Many may be shocked to find they have saved substantially more than their £50,000 allowance.

The figures will come as a surprise to many because the HMRC calculations for pensions contributions are based on the deemed growth of the pension in the year and bear little resemblance to the amount a doctor has actually paid into their pot.

Secondly, many of the letters our clients have received have been wrong – mainly down to the Pensions Agency allocating a back-dated award to the wrong tax year. It is imperative to check the calculations carefully to avoid generating an unnecessary tax bill.

If you have breached the annual allowance limit, you may be able to use ‘carry forward’ from the previous three tax years to offset the 13/14 excess. If there is still any excess, this will be added to your income and taxed at your marginal rate.

The difficulty is that these letters are received after the 2013/2014 tax year has closed so there is little that can be done retrospectively. Planning ahead in terms of managing contributions to your private pensions as well as your NHS pot is crucial to avoid future mistakes.

Any resultant tax charge has to be paid via self-assessment by declaring any excess on your tax return or choosing to use ‘Scheme Pays ’ (if the tax sum is greater than £2,000).

To apply for the NHS pension scheme to pay the tax charge for 2013/2014 in return for reduced eventual retirement benefits, the ‘Scheme Pays’ nomination must be made to the NHS pension agency by 31 July 2015. However, you should avoid waiting until next year to organise your pensions’ savings as this problem may occur again as the newly reduced annual allowance figure of £40,000 will now apply for the 14/15 tax year.

Have you received a letter from the NHS Pensions Agency? Do your finances need a second opinion? Call one of our specialist advisers at Cavendish Medical on 020 7636 7006.