Pension remedy does not mean ignore tax
Doctors advised not to get complacent because of the McCloud pension remedy.
By Edie Bourne
Independent practitioners have been warned not to ignore their annual pension statements from the NHS because they wrongly believe the McCloud ‘remedy’ has negated their tax issues.
Specialist financial advisers Cavendish Medical has been forced to remind doctors that the McCloud judgment – which will recompense those who have suffered age discrimination by moving to the 2015 NHS pension scheme – will not be implemented for some time yet.
Meanwhile, doctors should continue to address their pension savings tax issues, it says.
Annual pension statements for 2020-21 are now available from the NHS Pensions Agency and are essential to help doctors establish whether they are likely to be paying substantial tax charges on their pension savings.
The ‘annual allowance’ limits the amount of tax-free pension savings which can be accrued each year to £40,000. For higher earners, the ‘tapered’ annual allowance applies and can be as low as just £4,000.
Age discrimination
In early 2021, the McCloud consultation was concluded and set out how the deemed age discrimination caused by moving members to the 2015 pension scheme would be corrected.
The ruling was that affected doctors have the right to choose which remedy benefits to take – the pension benefits from their previous 1995/2008 pension scheme or those from the 2015 scheme – at retirement.
But although the Government has confirmed that new legislation to help deliver the remedy benefits is being drafted, it will not be in place for several years.
Patrick Convey of Cavendish Medical
Patrick Convey, technical director at Cavendish Medical, told Independent Practitioner Today: ‘We have been approached by several new clients utterly confused by what the impact of the McCloud remedy has on their current position and it’s easy to see why. As ever, nothing associated with NHS pensions is simple.
Get organised
‘NHS Employers has confirmed that the legislation needed to implement the McCloud remedy will not be ready until October 2023 at least. It is therefore imperative that you continue to assess your tax position now and pay all necessary tax payments. Your tax position will then be corrected at a later date.
‘If you intend to retire before the new legislation has been introduced, you should be contacted and asked to make your McCloud choice retrospectively. Payments will then be backdated to the time when benefits became payable.
‘I can’t stress enough how important it is to get organised. You should request your annual statement if you have not yet received it. Please get the statement checked because errors are common and they can cause significant problems.’
Those breaching the annual allowance can apply for the NHS to pay the tax charge under Scheme Pays in exchange for reduced future benefits. The application for Scheme Pays is normally 31 July each year but for the 2019-20 tax year, this has been extended to 31 March 2022.
No announcements have been made about the deadline for 2020-21 which currently remains as 31 July 2022. There are also other payments options which should be considered.
Mr Convey added: ‘Doctors are working long hours and about to go into another extra busy winter. They do not often have the time to keep up to date with the latest regulations.
‘Next year is going to be even more confusing, as NHS Employers has confirmed that, from 1 April 2022, all members of former NHS pensions such as 1995 and 2008 will be moved to the new 2015 scheme, regardless of their age, and the old schemes will subsequently be closed.
‘If you are a member of one of the legacy schemes, you will keep any service that you earned up until 1 April 2022 and be able to access your benefits normally. Going forward, any benefits you earn after this date will be in the 2015 scheme.
‘Now is not the time to bury your head in the sand or believe that it is easy to “go it alone”. We are here to help and hope we can make things much simpler for you.’