By: 12 March 2018
Cavendish Medical – Can you calculate your own annual pension growth?

Simon Bruce, CEO of Cavendish Medical, on complex tax allowances


The calculations for your annual allowance are important and will have an impact on the amount of tax you will need to pay.

The annual allowance limits pension savings contributions that qualify for tax relief to £40,000 for those with “adjusted income” less than £150,000. For those who earn more than this figure – including private practice work, benefits and pension contributions – the annual limit is reduced on a tapering scale down to a possible £10,000 per year.

For money purchase pensions, the value of the contributions are taken at face value, so if your contribution is £500 gross per month (after basic rate tax relief) your pension “input” is therefore £6,000 for the tax year.

For defined benefit pension schemes such as the NHS pension, the contributions for the year are calculated as the “growth” in the pension. The accrued benefits are measured at the start of the input period and again at the end of the period. An allowance for inflation is made (currently linked to the Consumer Prices Index) and the difference between the start and end values are deemed to be the “input” for the year.

Any increase in benefits such as an extra year of service accrued or an increase in pensionable salary will count towards the input. A pay rise given through a contractual obligation, a CEA, making management positions pensionable or a simple statutory rise could generate a tax charge.

Not all accountants understand how to calculate annual allowance inputs and excesses and this could delay the submission of 2016/17 tax returns. The result could mean having to amend tax returns at a later date, missing NHS “scheme pays” deadlines and having to find thousands of pounds to pay in tax on self-assessment returns, for what is often an artificial position.

For most busy consultants, life could be much simpler talking with a team who make the annual allowance their business.


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. 

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.