Will flexible NHS pensions end the tax misery for consultants?
Back in spring, a parliamentary review refused to listen to industry-wide calls to ‘scrap the taper’ – referring to the harsh pension savings limit known as the tapered annual allowance. However, the subsequent crisis in the NHS workforce (as consultants reduced their hours or retired early to avoid substantial tax bills) could not be ignored.
First, a consultation into a 50:50 flexible NHS pension was launched and then promptly stopped two weeks later by the new Prime Minister, Boris Johnson. He replaced it with proposals to allow doctors increased control to scale down pension contributions or take their employer contributions as salary – just as you thought pensions could not get any more complicated.
In summary, the proposed changes mean that consultants would be able to:
– Choose their desired pension accrual level (before 1 April each year) and pay the corresponding contributions. This will be in 10% increments; for example, 30% accrual with 30% contributions.
– Review their pension growth towards the end of the scheme year when their likely total earnings for the period are more accurate. They could then adjust their accrual / contribution level accordingly.
If a lower accrual level is chosen, employers could opt to pay the scheme member any unused contributions as a lump sum at the end of the year – but this is entirely at the employer’s discretion.
For consultants facing increasingly punitive tax positions, these changes will come as a small relief. Nonetheless, should these plans go ahead (the consultation is due to end on 1 November, 2019), they will undoubtedly add significant layers of extra complexity to the already fiendishly complicated tax calculations.
As a starting point for any consultant concerned by pension tax, we would recommend requesting your annual allowance pensions savings statement, which is now ready to obtain from the NHS Pensions Agency. You can then use this as a basis for discussions with your financial planner to ascertain your current position and the likely tax implications going forward.
Please make the request for your statement as soon as possible – do not wait for it to be automatically sent to you – as recipients can be missed, lengthy delays can occur and we have known many of the statements to contain substantial computer-generated errors so a thorough ‘sense-check’ is required.
If you are confused about the tapered annual allowance, the new pension proposals or your finances in general, please seek help without delay. Feel free to use this blog comments section as an area to express your experiences with pensions.