Loved and loathed, Clinical Excellence Awards (CEAs) are awarded to consultants and academic GPs who perform ‘over and above’ what is expected of them.
Whatever your view of them, a new consultant contract may cause their demise. How would this affect your income, the tax you pay, and your pension, and should you actually be fighting to keep the award scheme?
What exactly are Clinical Excellence Awards?
The Clinical Excellence Award (CEA) Scheme is basically an incentive scheme which allows NHS consultants to earn extra cash on top of their basic salary for truly outstanding work or research.
You have to apply to get a CEA. Whether the judging is fair or not is a controversial topic. Some believe that a small body of people sit and decide which of their friends are the most deserving; others see it as a valid recognition of the work that they have carried out over the years.
As a financial adviser, who am I to say which is the more accurate position – I leave that to those in the know! What I can authoritatively comment on is how CEAs impact your finances. More specifically, what you need to consider if you are thinking of applying for one or are deciding whether or not to fight to retain their status.
Clinical Excellence Awards can be an income for life
CEAs are superannuated which means that the extra cash awarded not only boosts your salary whilst you’re working, it can also have an impact on the value of your pension.
If you have pension rights under the old final salary NHS Pension Scheme – yes, some still do have such rights – and you win a Clinical Excellence Award, the monetary value of your award could be rocket fuel to your pension!
With your CEA(s) added, your pension will be based on:
- A higher final salary and,
- An income level on which you have only had to pay pension contributions for a few years.
Even if you are under the new NHS Pension Scheme which takes your career average salary, your pension will still be higher with Clinical Excellence Awards than without, but it will be marginal.
Clinical Excellence Awards can create tax issues
You are restricted to the amount that you can contribute to a pension environment in any one year. It’s called your annual pension allowance. NHS Medics: Calculating your annual pension allowance >
Because a Clinical Excellence Award increases your superannuated income, you are deemed to have contributed more to your pension and are therefore likely to breach your annual pension allowance.
If your CEA is awarded in the same year that you move up a pay grade, there’s an even greater chance that you will exceed your annual allowance. This is a particular concern for consultants who are in the old final salary NHS Pension Scheme.
Whatever causes you to exceed your annual pension allowance, breaching the limit could give you an unexpected tax issue.
Your tax position can get worse with Clinical Excellence Awards
Clinical Excellence Awards are typically backdated to the start of the tax year, but sometimes there is a delay in the back payment being made.
If the back payment ends up going into your account in the following tax year, and you also receive a normal incremental pay rise that year, the two together will increase your superannuated income.
This small, seemingly inconsequential action of delaying the commencement of your CEA could well cause you to breach your annual pension allowance and trigger an unwanted tax charge!
Clinical Excellence Awards can cause you to breach your lifetime pension allowance
In addition to your annual pension allowance, you also have a lifetime pension allowance. Your lifetime pension allowance is the maximum value of benefits that you can take from a registered pension scheme without being subject to the lifetime allowance charge. If you breach this limit, the tax charges are hefty.
So the key question is: “Do you hate paying higher taxes more than you like having a higher income?”
If the answer is no, then you should keep applying for CEAs and fight to save them. Although paying more tax is never fun, it may give you options to retire earlier…once you have reviewed all your facts and figures with your financial adviser of course!
What would happen if Clinical Excellence Awards were abolished?
I struggle to imagine a position where you have paid pension contributions on a part of your income for a number of years, only to see them being taken out of the equation and your pension suffering as a result.
Unfortunately, because I personally believe something to be grossly unfair does not mean that it cannot happen. If CEAs are scrapped and removed from your pension calculation, especially retrospectively, the ramifications will be different and complex for every CEA awarded consultant. Specialist advice will be a necessity.
What is your experience of the Clinical Excellence Award Scheme? Do you think there are better ways to reward you for your outstanding work? Let us know by adding a comment below.