Defined Benefit  

NHS pension annual allowance tool launches

NHS pension annual allowance tool launches

Pensions consultancy First Actuarial has developed and launched an NHS Pension Scheme annual allowance tool to help members understand their tax position.

The tool has been designed to educate NHS Pension Scheme members on pensions tax and the value of being part of the scheme. 

It will give members an insight into their annual allowance position but will only give a risk indicator rather than a “definitive statement” of the saver’s tax liability. 

This is because the annual allowance is complex and involves a “huge number of variables” as well as other sources of income such as investments.

The tool has incorporated a traffic light system to alert a member as to whether they are close to breaching the allowance.

It works as follows:

  • Green: The employee is projected to be well under the annual allowance
  • Amber: The employee is projected to be reasonably close to the annual allowance
  • Red: The employee is projected to breach the annual allowance (although the scheme may well continue to provide good value)

The tool will also indicate whether or not the tapered annual allowance may apply and will give an estimate as to how much the pension is projected to increase by over the next year. 

Dale Walmsley, the project lead at First Actuarial said: “Our research into the impact of pensions tax in the NHS showed that the annual allowance was a material concern for some members. 

“Pensions can be quite difficult to understand at the best of times and the annual allowance brings further complexity into the mix. 

“With this as background, we were delighted to work with NHS Employers to design and build a ‘ready reckoner’ to raise awareness of this complicated and sensitive issue."

He added: “The aim of this tool is to provide scheme members with estimates of the cost of membership, pension growth and their annual allowance position for the 2020/21 tax year.

“In many cases, this will highlight the value of membership and, for some, it will indicate the need for further investigation and possibly professional advice.” 

Both the annual allowance and tapered annual allowance have created a raft of issues for senior NHS staff over the past couple of years.

The taper 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 rules have forced senior clinicians and other high earning public sector workers to either leave their pension scheme, cut down on their working hours or retire early to avoid punitive tax bills.

While the Budget in March lifted the ‘adjusted income’ and ‘threshold income’ levels under the tapered annual allowance by £90,000 for the 2020-21 tax year, there are still doctors affected by the charge, including those who are taking on extra shifts due to the pandemic.

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