The vast majority of medical professionals will not need reminding of the annual allowance pension tax charge that has become ever more troubling since the 2016/17 tax year. This being the year the tapering of the £40,000 annual allowance was introduced.
If your taxable income was in excess of £110,000, you could well be in the position where your actual pension allowance is significantly less than £40,000. If you are a higher earner and an active member of the NHS pension scheme then pension tax charges may have already arisen and if this is not the case, the likelihood is that you will have little or no unused pension allowance to carry forward from the previous 3 input years.
One of the issues is that the NHS Pension Scheme is a defined benefit scheme, linked to your pensionable pay and therefore the growth of your yearly pension is generally out of your control. Each of the NHS pension schemes has different rules and the growth calculations are extremely complicated. We have seen significant errors in the growth statements issued by the NHS Pensions agency which is very troubling. The NHS pensions agency only issue the growth statements when the growth is over £40,000, which is very unhelpful given your actual tapered allowance could be significantly less than this.
With regard to the 2019/20 year, NHS England announced that annual allowance pension tax charges could be paid by the NHS Pension Scheme, with the NHS employer making a ‘contractually binding commitment’ to fully compensate for the impact of the scheme pays election on the pension benefits. Should you find yourself in this position you will need to complete the 2019/20 Annual Allowance Charge Compensation Policy Application Form.
For the 2020/21 year the pension tapering thresholds were sensibly increased. The threshold income increased from £110,000 to £200,000 and the adjusted income threshold increased from £150,000 to £240,000. The minimum annual allowance was previously £10,000 but this can now be a low as £4,000.
A word of caution. You may still find yourself in the position where your pension growth is in excess of £40,000. If this case pension tax charges could still arise.
It would be prudent to contact the NHS Pensions Agency after April each year and request the annual pension growth certificates. This will then allow for an annual review and also sufficient time to iron out any errors.
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