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Thomas Westcott advises many NHS professionals with their financial planning affairs; we would like to share with you a topic relevant to all NHS pension scheme members. 

It concerns the tapered reduction of the pensions annual allowance for those earning £150-210K per annum. This “adjusted income” figure includes NHS PAYE income, private practice income and the value of employer pension contributions amongst others. 

The standard annual allowance for pension savings is £40,000 but if your “adjusted income” exceeded £210,000 in 2016/17, your annual allowance for the year could fall to as low as £10,000. 

Any annual pension accrual over this threshold needs to go onto your tax return and is taxable (as income) at your highest marginal rate i.e. 45%. 

What is the correct figure to put onto your tax return? 

You wouldn’t want to get this wrong and submit incorrect information, especially as there is a 45% tax bill on the figure. 

From our experience a typical annual accrual figure for an NHS consultant in the new 2015 scheme could be as high as £25,000. 

Ongoing pension scheme membership could therefore be £15,000 over a tapered £10,000 annual allowance; this could be an extra £6,750 to pay in income tax each year.

The way to establish the figure for the tax return is as follows:

  • Work out your accrual for the year; this will depend on your specific NHS scheme membership be it the 1995, 2008 or 2015 scheme.
  • Work out if you have any unused carry forward allowance from the previous 3 tax years to use to offset the effect of the tapered annual allowance. 

The ability to use reliefs such as carry forward may help you delay the extra tax liability for the next couple of years. 

Where we can help you

If you think that this will affect you then we are here to help.

Armed with the key information about your pension scheme membership along with your earnings data, we can calculate the numbers so you can plan ahead for the future and submit the correct data for your tax return.

We can also help you with your overall retirement planning; this includes the interaction of private pension savings (SIPPs, FSAVCs) with your occupational pension membership, 24 hour retirement options and how best to plan against further tax considerations such as the lifetime allowance. 

 

By Simon Lake, Chartered Financial Planner

For further advice on this subject please don't hesitate to contact me or your local office