The NHS pension minefield and how NHS Pensions is helping

The NHS pension minefield and how NHS Pensions is helping

The NHS badly needs to retain experienced doctors and dentists, but there are a growing number retiring early to avoid punitive tax charges. Rising inflation has exacerbated a situation which was already a minefield for the unsuspecting clinician. This short article explains how the tax charges are incurred and what NHS Pensions are doing to minimise or eliminate them.

NHS Pensions are moving the date when pension growth is calculated so that few, if any, clinicians will be affected by tax charges.??More on this announcement below.

Firstly, we outline why the problems have arisen:

The Annual Pension Savings Allowance

For most people, the limit on their pension growth is ￡40,000, but for very high earners, this can be tapered to as little as ￡4,000pa.?

If the limit is breached in one year it is possible to bring forward unused reliefs from the 3 previous years, if available, to alleviate the position. If there is an excess, this is taxable at the taxpayer’s highest tax rate. It may be possible to fund the tax charge from your NHS pension using the NHS Scheme Pays Election, but this may bring other complications. The amount of growth can be found on your NHS Annual Allowance Pensions Savings Statement –??we also recommend expert advice should be taken.

The Lifetime Allowance

The second limit to be aware of is the Lifetime Allowance for pension savings which has been frozen at ￡1,073,100 for some time.??Younger dentists may not believe a pension fund of this size is achievable, but it can be reached with surprising ease with reasonable NHS activity. More senior practitioners may have the benefit of a higher limit, depending on their circumstances.

Changes to minimise risk of a tax charge

In a letter sent out by the NHS Business Services Authority to dentists towards the end of January, it was announced that the date used to work out the pension growth for annual allowance tax calculations will be changed from April 1 to April 6 this year. The effect of??moving the date by just a few days will??ensure that the pension growth calculation?only considers?growth in pension benefits above inflation. This should allay widely publicised fears that 2022/23 annual allowance figures would be severely distorted by the increased inflation currently being experienced. This is welcome news. The full outcome of the recently ended?consultation on this issue is awaited with interest. As always the devil may well be in the detail!

We strongly believe that if a senior dentist is able and willing to carry on working, they should not be prevented from doing so by an unexpected financial penalty.