Defined Benefit  

Doctors can pay tax charges through pension

Doctors can pay tax charges through pension

The government will introduce a change in the NHS pension scheme which will allow members to pay excess tax charges through their pension.

Concerns about the tapered annual allowance, which came into effect in 2016, have led doctors to leave the pension scheme all together.

This allowance is applied to high earners, and means that for every £2 of income above £150,000 per annum, £1 of annual allowance will be lost.

NHS scheme members can ask for the tax on any excess over the annual allowance of £40,000 to be paid from their pension.

However, if they are high earners and have their annual allowance tapered to £10,000, they would have to find cash to cover tax on £30,000.

The government is now introducing new rules to allow these payments to cover those affected by the tapered allowance.

In a letter to the British Medical Association, Matt Hancock, secretary of state for Health and Social Care, argued that the government is happy to discuss pension issues raised by the medical union.

He said: “One issue that you have raised that I can progress is the problem experienced by doctors who are subject to tax charges as a result of the tapering annual allowance, as the NHS Pension Scheme currently does not offer the “scheme pays” facility for this group.

“I can confirm that we have asked the Business Services Authority that administers the pension scheme to introduce this facility as soon as possible.”

Chase de Vere Medical, part of independent financial advice firm Chase de Vere, has previously warned doctors not to leave their defined benefit (DB) pension scheme, as they will miss out on valuable benefits.

According to media reports, a quarter of a million NHS workers opted out of the pension scheme over the past three years.

Data from NHS Business Service Authority shows that 245,561 people opted out of the scheme between 2015 and 2017, with 102,755 opting out in 2016 alone, representing a 78 per cent increase from the previous year.

According to Jon Greer, head of retirement policy at Quilter, the “impact of the lifetime allowance is beginning to rear its head,” which is showed by the opt-out numbers.

He said: “This trend is likely to continue as Treasury have made it clear taxation on pension is no longer for the substantially wealthy.” 

“However, the massive increase can also be down to households feeling the weight of the cost of living. Under the pressure of immediate living costs saving for a retirement appears to be an unaffordable, and in certain schemes like the NHS, which provides generous benefits, there is evidence that the lack of flexibility is leading to some lower paid individuals leaving the scheme.”