Review your NHS pension before taking any action
Consultants urged amid health service consultants’ exodus
By Edie Bourne
Doctors considering leaving the NHS or reducing hours in a bid to remove punitive tax bills on their pension savings should have their figures rechecked, warn specialist financial planners Cavendish Medical.
Many NHS consultants are facing additional five-figure tax liabilities thanks to the unusual way their NHS pension growth is calculated – but some of these tax charges could be lowered by the outcome of the McCloud remedy.
Tax-free pension savings are limited to £40,000 every year for most people, known as the annual allowance. Higher earners will face an even lower limit called the ‘tapered’ annual allowance which can be as little as just £4,000.
Doctors can easily breach the allowance because in defined benefit schemes such as the NHS, the value of pension savings is determined by the deemed ‘growth’ in the year, not by the actual contributions.
Patrick Convey
The growth is calculated using the previous year’s September inflation figure, meaning pensions could rise by more than 10% this year.
Patrick Convey, technical director of Cavendish Medical, explained : ‘The medical profession is already tackling the most challenging of times in the NHS, but the pensions mess continues to add to their problems. Many believe they are effectively paying to come to work and are forced to reduce their hours accordingly.
‘However, we would urge anyone facing tough decisions to double check their position with expert support to ensure the figures they are working from are accurate.’
Pension figures wrong
He told Independent Practitioner Today: ‘First of all, we see many pay and pension figures that are wrong – computer-generated errors are commonplace in NHS trust administration. This means your starting point is incorrect before you start modelling possible solutions.
‘Secondly, it is entirely possible that the McCloud remedy will reduce the annual allowance figures for individuals.
‘The McCloud remedy means that NHS members deemed to have suffered age discrimination when the 2015 pension scheme was introduced will eventually receive their original benefits from the 1995 or 2008 scheme for the five years of the “remedy period”.
‘No part of the NHS Pension Scheme is ever easy to work out, and the McCloud remedy is no different – but it is possible that it could bring positive news for some.
‘We have found that doctors checking their last three years of annual allowance figures, for example, calculate significant tax charges, but when reworked over seven years, this is reduced. We look at seven years because we add an extra two years to the five-year remedy period, as the annual allowance can be carried forward for up to three years if not used.’
‘Of course, we will see more problems of this nature in the future as those same doctors start to build up pension in the 2015 scheme once more, but it can be a welcome reprieve for the time being.’
An NHS consultation was launched in December to consider proposals to introduce partial retirement flexibilities to the 1995 Section of the NHS Pension Scheme and to reduce the impact of inflation on pension growth. It is due to finish at the end of January.
Mr Convey added: ‘Jeremy Hunt had promised to tackle doctors’ harsh tax bills before he became Chancellor, but, as such, there have been no concrete announcements. We await the outcome of the latest consultation, but many doctors could have already left the NHS before change has been actioned.’