Annual Allowance pension tax charge
As you may be aware, further tax may be due if your pension savings each year exceed the available Annual Allowance threshold.
The standard allowance is £40,000, but this may be reduced (tapered) for higher earners. There is a facility to bring forward unused allowances from the previous three years, should pension savings have been below the available limit in those years.
Where a taxable excess occurs, it is possible to ask the NHS Pension Scheme to pay the tax for you. Your pension in retirement would then be reduced to recover the tax paid on your behalf.
NHS England 2019/20 Commitment
In a move designed to encourage clinicians not to reduce work commitments in the NHS, NHS England has provided a commitment for the 2019/20 year.
Where the option for the scheme to pay the tax is taken, the pension in retirement will be reduced in the normal way, but the NHS will pay you a corresponding compensation payment.
This compensation payment is subject to Pay As You Earn deductions, which will entirely recompense you for the reduction in pension. You would consequently suffer no financial loss.
It is generally possible to submit an estimated Scheme Pays Election (SPE) for as little as £1 for each scheme you are a member of.
The deadline for submission of this for 2019/20 was originally 31 July 2021 but this has been extended to 31 March 2022. Where an estimated election is submitted for 2019/20, you then have until 31 July 2024 to amend the SPE.
By completing an election you would be safeguarding your ability to use this facility and, more importantly for this one year, retain the guarantee from the NHS to recompense the pension reduction.
This commitment does not apply if you pay the pension tax charge yourself as part of your normal self-assessment tax liabilities.
The application form for the compensation scheme was released by the NHS for England and Wales on 10 December 2020, with instructions that it should be completed and submitted at the same time as, or slightly after, the scheme pays election.
If requested so to do, we will assist our clients with the completion of both forms. Fee proposals for this service are available on request.
When is the submission deadline?
The submission deadline for the compensation application to be sent to PCSE is 11 February 2022, which means the SPE will also need to be submitted by this earlier date when compensation is being claimed.
Whilst NHS Pensions are obliged to accept SPEs under certain conditions, they may voluntarily accept them even if those conditions are not met. If a voluntary election is accepted, the tax for 2019/20 remains due by 31 January 2021.
If NHS Pensions pay this over to HMRC later than that, which is entirely possible as the election submission deadline is later, HMRC may charge interest, which will fall to the individual.
Similarly, where estimated elections are amended when final figures are known, interest may again arise to the individual. MHA do not take responsibility for any interest that might arise in these circumstances when carrying out work on behalf of our clients.
If you are an employed clinician, (not a GP) you should have had your 2019/20 Pension Savings Statement by 6 October 2020, if you have not received one, we recommend that you request it so that the position can be checked and a SPE submitted if required.
Please note that this scheme does not apply to clinicians who are members of the NHS Scotland Pension Scheme.
Contact us
If you require any advice regarding the above please get in touch with our Healthcare Services team.
