Have you requested your NHS pension statement?
Simon Bruce, CEO of Cavendish Medical, on why you should check your NHS pension figures carefully
In autumn every year, the NHS Pensions Agency issues letters detailing doctors’ annual pension contributions for the preceding tax year, but only if the doctor has “growth” in their pension pot of more than £40,000.
The £40k figure is set at the standard annual allowance rate – the amount that can be contributed to a pension each year while still receiving income tax relief.
However, there is a new “tapered” annual allowance for those with “adjusted income” over £150k, which reduces this figure further, to just £10k for many doctors. Remember that “adjusted income” includes private practice profits, dividends, benefits in kind and pension contributions.
Anyone breaching the reduced annual allowance – at whatever level is relevant to them – will pay income tax on the “excess” above £10k at their marginal tax rate, typically 40 or 45 per cent.
Therefore, if your pension grows each year by more than £10k, you could face harsh tax penalties, but will be unaware as only those saving over £40k per year are required to receive the warning letters. A further aggravating factor is that you may find that you are restricted from making use of the NHS pension “scheme pays” facility (for example asking the NHS pension scheme to pay the charge) for the amount between £10K and £40K.
You should request your own annual allowance pensions saving statement from the NHS Pensions Agency as soon as possible. The NHS is not the fastest at responding to requests. You will need to allow considerable time for the source data to be checked before your tax return deadline.
Not only are the calculations particularly complex but we have come across many letters where the sums are wrong, causing substantial headaches for the recipients and impacting the amount of tax that is due. Seek help as soon as you can.
Simon Bruce is CEO of Cavendish Medical – specialist financial planners for medical professionals in the NHS or private practice. For a second opinion on your finances, please contact us on 020 7636 7006. www.cavendishmedical.com
The content of this article is for information only and must not be considered as financial advice. Cavendish Medical always recommends that you seek independent financial advice before making any financial decisions.
Levels, bases of and reliefs from taxation may be subject to change and their value depends on the individual circumstances of the investor. The value of investments and the income from them can fluctuate and investors may get back less than the amount invested.