We all dread receiving the brown envelope with an HMRC logo, no more so than our higher earning NHS doctors this year! With the September 2022 CPI figures confirmed at 10.1%*, concerns raised in our June article “How inflation will affect your annual allowance” are becoming a harsh reality for many doctors.
There is however, a tiny glimmer of hope for NHS pension members. Amongst the raft of recent unpopular government announcements, our current Health Secretary, Therese Coffey, announced a package of measures to improve patient care and reduce the exodus of doctors from the NHS. One announcement was: “We will correct those pension rules relating to inflation.”
Whilst this is a positive step, the measures fail to fully grasp the problems within the NHS pension scheme and appear to favour tinkering with the CPI dates to mitigate the disconnect rather than address the issues in their entirety. However, full details are yet to be released, so we should try to remain optimistic, at least for the time being! As always, we will endeavour to update our clients as soon as we have concrete details.
You’ve received an annual allowance statement showing a liability – what now?
Firstly, don’t panic or make a decision without all the facts. In truth, for the majority, the scheme benefits outweigh the tax burden as there are options for paying any liability. When checking your annual allowance statement look out for the following:
1. Understand the pattern of your annual allowance
The 1995 and 2008 schemes are both final salary pensions, so an increase in pensionable income can lead to a spike in growth. You see a spike in your statement – does this correlate to an increase in pay, such as moving up a pay grade? If it’s a jump but not a big spike it may be that your increment date is halfway through the tax-year, possibly spreading the load over two tax years.
The 2015 pension scheme is a career average earnings pension, so it is less prone to spike. We tend to see a gentler projection upwards, slightly increasing when moving through a pay grade.
2. Use unused relief in the three previous tax years
BEWARE: you need to check that you have not suffered pension tapering, where your allowance of £40,000 is reduced. The threshold at which you start to suffer this tapering is £200,000, but it has only been like this since 2020/21. Previously it was £110,000.
3. HMRC offers an annual allowance calculator
The HMRC pension annual allowance calculator may help you calculate your liability.
4. Concerns over errors in annual allowance calculations
There has been much talk in the press recently concerning errors in the calculations of the annual allowance. Common mistakes include; backdated pay awards falling into the wrong tax year, part-time roles counted as full-time and elections regarding coming in and out of the scheme.
A good starting point would be to ascertain what data they have used for the calculations, and this should include pay and service if you are not full-time. You can request your pension statement from the pension’s agency.
There are many aspects to consider when calculating your annual allowance liability, so if you still feel like a rabbit caught in the headlights, please seek help from a professional!
We strongly recommend you talk to specialist accounts and\or financial advisors such as Legal & Medical – we are here to help.
Have you worked out if your annual allowance statement is correct? Let us know by leaving a comment below
This article is not specific advice. We would always suggest that you get specialist advice in this area.
References:
* Consumer price inflation, UK – Office for National Statistics