Tax 

Doctors flock to advice after breaching allowance

Doctors flock to advice after breaching allowance

Nine out of 10 doctors who have breached the annual allowance intend to take, or have taken, financial advice on their pensions tax position, according to research.

A report by pension provider First Actuarial into the impact of pensions tax on the NHS and the NHS Pension Scheme has found that, out of the 2,500 doctors surveyed, two in three (67 per cent) will take or have already taken advice from an independent financial adviser.

It was also suggested that it was difficult to find financial advisers who were willing to engage with members facing pension tax difficulties in the NHS Pension Scheme.

The NHS Pension Scheme currently has about 1.6m active members building up scheme benefits; 700,000 deferred members and 900,000 pensioner members in receipt of their pension.

Concern about doctors' pensions has increased 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 adjusted income above £150,000 a year, £1 of annual allowance will be lost.

Due to this many doctors are cutting down on overtime and some are exiting the scheme altogether.

First Actuarial stated: “We do not expect a large percentage of the workforce to be affected by annual allowance tax charges. However, in an organisation with well over a million employees even small percentages can mean a large number of people. 

“For example, with nearly 1.6m active members in the NHS Pension Scheme, if 2 per cent of the workforce are potentially affected this would mean around 32,000 people.”

The annual allowance, currently set at £40,000, is a limit on the amount of tax-relieved pension savings that can be made to registered pension schemes over a year. If an individual exceeds this limit they may incur a tax charge.

Tax rules allow any unused annual allowance in the last three pension input periods to be carried-forward and used to counter any breaches in the current year.

According to the research, nearly two thirds (56 per cent) of doctors expect to exceed the annual allowance in the future despite only 29 percent having breached the threshold previously.

First Actuarial suggested that the large numbers that believe they might be affected despite not having breached yet could be due to the combination of carry-forward running out and introduction of tapering in 2016. 

The research showed that nearly a third (805) of respondents have total pay exceeding £130,000 – this means their taxable pay (or threshold income) is likely to be greater than £110,000 so they are at a high risk of the tapered annual allowance.

Almost half (43 per cent) of doctors would rate their understanding of the annual allowance as ‘low’, with 40 per cent as ‘medium’ and 17 per cent as ‘high’. However, the level of understanding is strongly related to whether a person has breached the annual allowance in the past or not.