An update for NHS staff on the annual allowance charge for 2019/20

24th February 2020

Current Issues

The introduction of the tapered pension annual allowance from 6 April 2016 has been a contentious issue for many, in particular senior NHS staff members.

The legislation change means that, for high income individuals, the annual pension allowance may be reduced from £40,000 to a minimum of £10,000. Pension inputs in excess of the annual allowance continue to be taxable at marginal income tax rates however; the tapering has meant a significantly higher number of individuals are falling fowl of the excess charge.

This change has disproportionately affected NHS staff members as the NHS offer a defined benefit pension scheme. Broadly speaking, this calculates annual pension input by reference to the growth in the pension pot, which is affected by pensionable pay.

The only option to control the growth in NHS pension pots is therefore to reduce pensionable earnings for the year, meaning many are opting not to take on any additional shifts, in an effort to avoid the huge tax charges that are hitting them.

Since the introduction of the tapering, the only attempt made to help those effected by an excess charge has been for the ‘scheme pays’ facility to be extended to cover the whole tax liability arising (previously this was restricted to only cover certain circumstances). The downside of the scheme pays facility however, is that it reduces the overall value of an individual’s pension pot on retirement and is therefore not a simple fix.

Looking to the future

In the long term, the Treasury are consulting on ways to amend the current annual allowance legislation to help mitigate the somewhat unintended effects of the tapering. This will be good news for not just NHS staff but also other higher earners.

They are expecting to announce the outcome of the current consultation document following the 11 March budget, but have confirmed that any changes will not take effect from the 2019/20 tax year.

NHS England has therefore stepped in as a short term measure for those affected by the charge in 2019/20.

For those members who opt for ‘scheme pays’ in 2019/20, the NHS have agreed to make an additional payment into the member’s pension pot on retirement, equal to the value paid out for the tax charge in 2019/20, to avoid any loss to the individual.

There are however a number of caveats.  For example, the offer applies to NHS scheme charges only, ignoring all pensions held outside of the NHS, and is also not available to cover any excess arising from Additional Voluntary Contributions (AVC’s) made.

It is therefore worth contacting your accountant and/or financial advisors to ensure you are making the most of the available help in 2019/20.

If you would like to discuss the above with us in more detail, please contact us.

*Details of the calculation required to determine if you are a high income individual are not included above however these are available on the gov website here: https://www.gov.uk/guidance/pension-schemes-work-out-your-tapered-annual-allowance



 
Other items in Blogs
 
Nick Edgley
3rd July 2020 31 July: Is full amount of income tax payable?

Many taxpayers who are required to file a self-assessment tax return to HM Revenue & Customs should now be preparing for their next half-yearly tax payment which is due by 31st July. The amount payable is the second payment-on-account for the 2019/20 tax year and is automatically calculated as half of the total tax liability…

Read More »

Jaimie King
2nd July 2020 Covid Charity update

Many of the charities we support have been concerned about the impact of Coronavirus, and have understandably had many questions with regards to support and how to manage the charity.   Below is some of the latest government guidance (as of 26th June 2020) with regards to some of the most frequently asked questions that…

Read More »

James Cater
30th June 2020 New electrical safety regulations for all landlords

While the Coronavirus pandemic holds our attention it is easy to overlook other changes taking place in its shadow. From 1 June 2020 new electrical safety regulations have come into force which apply to all new lettings of dwellings; from 1 July 2020 (tomorrow!) the regulations will be extended to cover all existing lettings of…

Read More »

Katharine Bebbington
29th June 2020 Companies House automatically extend year end

On 25 June 2020, the Corporate Insolvency and Governance Act 2020 received Royal assent.  As a result, Companies House have announced that for eligible companies they will automatically extend the filing deadline for 3 months because of Covid-19.  These are for companies with a filing deadline between 26 March 2020 and 29 September 2020.  This…

Read More »

Ernesta Petkeviciute
29th June 2020 Guidance on pension scheme financial reports and audit featuring Covid-19

A joint guidance has been published by ICAS, ICAEW and PRAG on pension scheme financial reports and audit, with a large focus on Covid-19 matters.   The impact of Covid-19 pandemic on the control environment of pension schemes is explored, to help auditors navigate the additional challenges they are likely to experience and help them…

Read More »

Paul Jefferson
26th June 2020 Delaying Import duty and VAT

HMRC have implemented measures to assist businesses that are registered importers who pay VAT and Duty at the time of import and are facing financial difficulties as a direct result of Coronavirus.   What to do if you’re a Duty deferment account holder   You can contact HMRC for approval to enter into an extended…

Read More »