Simon Bruce on why senior doctors might find they are ‘on their own’
If you owe tax on your pension contributions because you have breached harsh new annual savings limits, you may find you are now unable to ask the NHS pension scheme to pay the charge.
Those breaching the annual allowance, which restricts the amount that can be saved into a pension while still receiving tax relief to just £40,000 per year, will be charged tax on the excess savings at their marginal rate of income tax. Normally you have the option of applying for Scheme Pays – requesting that the NHS Pension Scheme pays some, or all, of the tax bill in exchange for reduced future benefits.
Interest accrues at the rate of 2.8 per cent each year, plus the relevant CPI (consumer price index) rate of inflation. The amount owed will be converted into a reduction of pension and lump sum benefits upon retirement (although there can be tax advantages in doing this).
However, since April 2016, there is also a new tapered annual allowance for doctors with adjusted earnings (ie all their NHS and private earnings plus interest from savings, plus the actual growth in the pension itself) of over £150,000. This ‘taper’ reduces the permitted pension contributions down on a sliding scale from £40,000 to as little as £10,000 per year.
Unfortunately, the Scheme Pays option may only be applicable to the proportion of tax charges caused by exceeding the standard annual allowance of £40,000, not breaches of the new tapered allowance.
If your pensions’ savings exceed both caps – the tapered allowance at whatever rate is relevant to you, plus the standard annual allowance – you could still qualify for Scheme Pays, but only on the portion of the excess above £40,000.
To make matters worse, you may not have received your annual pension savings letter from the NHS in time (or at all) so do not have a clear picture of your position. The NHS is only required to issue statements to those breaching the full annual allowance, not the tapered limit, so you may be entirely unaware of where you stand.
Do not delay in clarifying your own status. The deadline for Scheme Pays is normally 31 July each year, but it can take several months to gain the necessary information from pension schemes.
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.
