How does the new consultant’s pay deal affect your annual allowance?

After months of industrial action, consultants in England have accepted the latest government offer on pay. The new pay structure will reduce the number of pay points from eight to five and shorten the time it takes for a consultant to reach the top of the pay scale by five years. Consequently, consultants will now achieve their maximum basic salary after 14 years in the role. In this article, we will look at how this pay increase will affect annual allowance pension growth. 

(Need a quick refresher on what the annual allowance is? Take a look at the end of this article).How the new consultant's pay deal affects their annual allowance.

A gentle reminder: No annual allowance figures have been generated since the 2021/2022 tax year because of the McCloud judgement. Essentially NHS pensions have been busy re-calculating all members’ growth dating back to 2015. NHS pensions have said that by October all pension members should receive revised pension growth figures ‘post McCloud’ dating back to 2015. This will mean each member will now get 9 years’ worth of revised figures sent to them. You can see they have been quite busy!

As discussed in previous articles, any members who have paid a tax charge that no longer stands over the last 9 years will be able to reclaim some, or all of it if upon recalculation their pension growth is now lower following McCloud.

Back to the pay deal and the Annual Allowance…

Increases in pensionable pay can significantly impact pension growth, which is measured against the annual allowance. However, it’s important to remember that higher pensionable pay will also enhance your benefits in retirement.

How will this affect you if you are in different sections of the NHSPS?

Both the, 1995 and 2008 schemes use ‘reckonable pay’ to calculate your pension benefits, but the definition differs between them. In the 1995 section, ‘reckonable pay’ is the best of the last three years’ pay. In the 2008 section, it is the average of the best three consecutive years of pensionable pay in the last ten years. For members of the 2015 scheme, the increase will still have a positive effect as pension benefits are based on career average earnings.

This pay increase could be significant depending on where a consultant is on the pay scale. For example, a consultant who has completed eight years will see their pay jump from £105,390 to £118,884, while one with 14 years completed will see an increase from £119,323 to £131,964.

This is great news, as earning more helps to regain some of the real (post-inflation) pay reductions experienced over many years and boosts retirement benefits. However, the sudden increase in pay also brings a larger annual allowance tax liability, which remains a significant concern.

Are there any factors in play that could improve the situation?

The good news is ‘yes’!

Following recalculation of the McCloud figures, where most members who moved to the 2015 scheme have been shifted back into the 1995 scheme from 2015 to 2022, some members may have more carry forward than previously calculated. This is due to the accrual rate in the 1995 scheme being smaller /slower than the 2015 scheme, therefore the deemed increase in value in the years 2015-2022 will be smaller than previously reported.  

Additionally, the increased annual allowance of £60,000 provides better headroom for growth. Since April 2023, growth in the 2015 scheme has no longer been negatively impacted by the CPI disconnect, as the revaluation date has been moved to April 6th.

Another new feature going forward is that pension growth can now be negative in the 1995/2008 schemes if the increase in deemed pension value is lower than inflation. This negative growth can offset growth in the 2015 scheme, potentially resulting in more carry-forward availability. It is important to note that negative growth cannot be carried forward.

Despite these adjustments, some consultants will still face an annual allowance tax charge. It is crucial to remember that the increase in pensionable pay will ultimately enhance pension benefits, which are payable for life and indexed to inflation. Therefore, a one-year annual allowance charge is balanced out by long-term income benefits. So it isn’t all doom and gloom!

Annual allowance charges can be paid either in cash or by using the ‘scheme pays’ option, where the tax charge is paid by the pension, subsequently reducing annual income in retirement. However, be cautious, as the interest rate charged is CPI + 2.4%.

Need some help?

Fortunately, you are not alone and there are several accountants and specialist medical independent financial advisers, like Legal & Medical, who can guide you through these complexities.

Get in touch to discuss how this is likely to impact you.

This article is not specific advice. We would always suggest that you seek specialist advice in this area.

Reference: Fixing pay for consultants in England (


What is the annual allowance?

The annual allowance is the limit to pension growth in pensions, such as the NHS pension scheme, or contributions in personal pensions, which the government sets. 

From April 2023 this is £60,000 per year. Previously the allowance was £40,000. One can ‘carry forward’ any unused allowance from the preceding 3 years. Any contributions/pension growth above this amount (after utilisation of carry forward) will be taxed at the member’s highest marginal rate of tax.

When it comes to the NHS pension scheme, pension input has nothing to do with how much the member/employer pays into the scheme. It is linked to the amount that your scheme benefits have been deemed to have grown during the tax year.

The calculations for pension growth differ depending on the scheme in question (1995/2008/2015). If an NHS member has exceeded the annual allowance, traditionally the dreaded ‘brown envelope’ containing the pension growth for the previous tax year would arrive on one’s doorstep around October time. 

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