Scheme pays take-up surges at NHS scheme

Scheme pays take-up surges at NHS scheme

More than 30 per cent of doctors who breached their annual allowance in 2017-18 used scheme pays to foot the bill, new figures have shown.

According to a freedom of information request from Quilter, 12,655 members of the NHS pension scheme exceeded their annual allowance in the last tax year. Of these 3,869 used the scheme pays facility.

Overall, since the annual allowance was cut to £40,000 in 2014, an average of 17,000 NHS staff breached the ceiling on pension contributions each year. 

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But despite the surge in take-up in the 2017/18 year, on average only 1500 members, or 9 per cent, took advantage of the scheme pays facility in the past five years.

Scheme pays allows savers to settle annual allowance tax charges of more than £2,000 through the pension fund without needing to find funds upfront.


Members exceeding the annual allowance

Scheme pays elections



























In the second half of 2018 the NHS pension scheme introduced voluntary scheme pays, which could explain the recent jump in the take up of this option.

Before the new regulations were introduced, NHS scheme members could only ask for the tax on any excess over the annual allowance of £40,000 to be paid from their pension.

Alistair Cunningham, financial planning director at Wingate Financial Planning, said: "This means anyone with a pension input amount of under £40,000 would have to self-pay. I would expect a significant increase in both the number of NHS staff opting for scheme pays in the 2017/18 tax year (electing for this to be paid before the end of the July 2019) and the level of tax due (as the tapered annual allowance starts to bite)."

Concern about doctors' pensions has increased significantly since the introduction of the tapered annual allowance in 2016.

This gradually reduces the allowance for those on high incomes, meaning they are more likely to suffer an annual tax charge on contributions and a lifetime allowance tax charge on their benefits.

The tapered annual allowance means that for every £2 of income above £150,000 a year, £1 of annual allowance will be lost.

It emerged in December that the number of members leaving the NHS Pension Scheme was five times higher than that seen by other public pension funds.

Individuals who use scheme pays will see their benefits adjusted at retirement and will pay interest.

For payments until March 31, 2019, the scheme applies an interest of 2.8 per cent in excess of inflation, which has decreased to 2.4 per cent, plus consumer price index, from April onwards.

According to Ian Browne, pensions expert at Quilter, the tax system is too complex.

He said: "It is the consequence of an intricately layered tax system that is in need of simplification.

"Anyone that may be affected by an annual allowance charge should think about seeing a financial adviser. They can help ensure you are making the most of your tax allowances and could save you huge sums."

Mr Browne also noted that the NHS should ensure it promotes the scheme pays option clearly as it seems thousands of eligible members may be unaware it even exists.