How advisers can help alleviate doctors' pension woes

  • Describe some of the challenges around doctors' pension allowances
  • Explain the impact of inflation
  • Identify the significance of pensions for the medical profession
How advisers can help alleviate doctors' pension woes
Many senior NHS clinicians have stated they feel they are paying to go to work due to pension tax charges. (FT Montage)

The NHS clearly faces some significant challenges in meeting the demands placed upon it.

While some of these issues require increased funding to create more infrastructure (more beds, ambulances etc), some are a result of a pension scheme designed to be an integral part of the remuneration package, but currently is proving a disincentive to some higher paid staff.

Many of these are senior clinicians who are retiring, declining promotion, or reluctant to fill the additional shifts needed to clear waiting lists, because it does not make financial sense to do so.

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It often falls to the advisers of these clinicians to pick up the financial pieces when potentially eye-watering tax charges drop through the letterbox, which in some cases are totally unexpected.

Many senior NHS clinicians have stated recently they feel they are “paying to go to work”.

However, changes announced in the budget on 15 March 2023 combined with commitments made in “NHS Pension Scheme proposed amendments to scheme regulations consultation response” published 7 March 2023, should alleviate many of the clinicians’ concerns.

Here we set out some of those pre-existing issues and explain how, and the extent to which, recent announcements may resolve them.

Annual allowance (AA)

The standard AA is currently £40,000 a year and the chancellor announced an increase to £60,000 effective 6 April 2023.

This is likely to take many NHS clinicians out of scope of AA tax charges.

However, the process for measuring pension input to defined benefit (DB) pension schemes, including public sector pension schemes, could see some pension savers still inadvertently incur an annual allowance tax charge.

Pay rises, promotions, additional pensionable work undertaken, and even the cessation of salary exchange arrangements can all give rise to additional pension input, which will not always be apparent to scheme members until they are advised of the tax charge.

For those still impacted, advisers need to remain mindful that not all additional payments the NHS make to clinicians are pensionable.

Typically, non-routine additional payments such as overtime or bonus payments will not be pensionable.

So, clinicians could undertake additional shift work without increasing their pension input, although it could still impact their tapered annual allowance (TAA).

Awareness of all this enables more effective conversations with their clinician clients and helps identify whether carry forward may alleviate the problem.

Do remember, the AA increase is not retrospective, so it will not offer additional allowance to carry forward to the 2022/23 tax year.

Misaligned CPI figures

Another challenge for clinicians trying to keep within their AA has been the interaction of inflationary increases applied to 2015 reformed scheme benefits, and those applied to the opening figure of the AA calculation.

At present, pension benefits accrued in the 2015 scheme are adjusted for inflation on 1 April each year by the CPI figure in the previous September.

As part of AA measurement, the opening value in the calculation is increased by CPI in September of the preceding tax year.