TAPERED ANNUAL ALLOWANCE – NHS

TODAY’S BLOG

TAPERED ANNUAL ALLOWANCE – NHS

The Tapered Annual Allowance was introduced from 6 April 2016. It has caused considerable problems for members of the NHS pension scheme in terms of excess tax charges due to the formulas used in the calculations.

Admittedly having a good pension is a nice problem to have, but when faced with an excess of say £60,000 (by calculation) this generates a tax bill of typically £27,000. I have seen some that are much higher.

Therefore, many Consultants and senior NHS staff have really been forced to reduce their sessions (NHS pay) or take a break from or leave the pension scheme entirely – which is nuts. This is essentially a tax charge on money that has not yet been paid (it is paid at retirement).

After much badgering, a compromise has been reached for the current tax year 2019/20. In that a political promise has been made that the excess tax charge will permit the pension scheme to pay the charge and the employing NHS Trust will pay now compensate for this when the pension starts (my short version). This has now been confirmed for the English and Welsh NHS Pension Scheme.

NHS Annual Allowance 2019/20

Superficial Fix

There is as yet, nothing NEW stated about the 2020/21 tax year (there are restrospective juggling adjustments that can be made towards the end of the year, but these are daft) – but we do have a Budget coming in March, so we hope the ludicrous Tapered Annual Allowance will be scrapped then. However, this ought to apply to everyone, not simply NHS employees.

The Annual Allowance – Simplified, Quick Overview

In very simple terms the Annual Allowance is a maximum of £40,000. This is the total that can be paid into pensions by you and your employer. It reduces by £1 for every £2 of income over £150,000.  The allowance reduces to a minimum of £10,000 once an income of £210,000 is earned. In short, you can invest more into your ISA. However, for those in final salary schemes and the NHS in particular, the calculation is not really about how much is paid in, but how much the pension grows by and then multiplied by 16. So, if your pension increased by £1500 for the year that’s £24,000. Not the 14.5% of salary you must pay to be in the scheme. Its way more complex than this, but to save time, go with my summary.

It Is Political – Government and the NHS always are

In view of the impact that pension rules are having on senior NHS staff and their ability to work their normal hours, and with winter bringing the usual rise in demand for NHS services, NHS England and now NHS Wales and NHS Improvement have decided to take exceptional action. An extract from the announcement is given below:

‘This action will mean that:

·         Clinicians who are members of the NHS Pension Scheme and face a tax charge in respect of work undertaken this year (2019/20) as a result of breaching their annual pension allowance will be able to defer this charge (by choosing ‘Scheme Pays’ on their pension form) meaning that they don’t have to worry about paying the charge now out of their own pocket.

and:

·         The NHS employer will make a contractually binding commitment to pay them a corresponding amount on retirement, ensuring that they are fully compensated in retirement for the effect of the 2019/20 Scheme Pays deduction on their income from the NHS Pension Scheme in retirement.

Watch Out For…

Clinicians are therefore now immediately able to take on additional shifts or sessions without worrying about an annual allowance charge on their pension for 2019/20.

Local NHS employers are being asked to actively promote this development to affected staff as they plan for extra capacity and staffing over the winter period.’

This measure will only apply to the 2019/20 tax year as new flexibilities are being introduced from 2020/21.

Dominic Thomas
Solomons IFA

You can read more articles about Pensions, Wealth Management, Retirement, Investments, Financial Planning and Estate Planning on my blog which gets updated every week. If you would like to talk to me about your personal wealth planning and how we can make you stay wealthier for longer then please get in touch by calling 08000 736 273 or email info@solomonsifa.co.uk

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Solomon’s Independent Financial Advisers
The Old Bakery, 2D Edna Road, Raynes Park, London, SW20 8BT

Email – info@solomonsifa.co.uk 
Call – 020 8542 8084

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If you would like a no-nonsense one page document explaining what financial planning is all about please enter your email here.

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GET IN TOUCH

Solomon’s Independent Financial Advisers
The Old Bakery, 2D Edna Road, Raynes Park, London, SW20 8BT

Email – info@solomonsifa.co.uk    Call – 020 8542 8084

WHAT WE’RE ALL ABOUT

If you would like a no-nonsense one page document explaining what financial planning is all about please enter your email here.

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TAPERED ANNUAL ALLOWANCE – NHS2020-01-21T10:33:00+00:00

Talking Money…. again

Talking Money… again

As you will have gathered from the plethora of adverts in the weekend papers and advertising hoardings everywhere, the tax year is coming to a close. This means it is your last chance to use up your 2016/17 ISA allowance of £15,240 or perhaps a Junior ISA for those young enough.

This tax year has had many unwelcome changes, most significantly the pension tapered annual allowance, which has reduced the annual allowance (normally capped at £40,000) to a £10,000. This applies to anyone with “adjusted income” over £150,000. But that doesn’t make you “safe” if you don’ earn £150,000. As the annual allowance is £40,000, the maths starts at £110,000 of income. Pension contributions paid are added to income, indeed any income, be it rent, dividends or interest are all counted. So many may well find that they have exceeded the annual allowance.

Deliberate Complexity

Yes, the Government could have made things easier, but why bother when there are so many willing voters who will forget the hassle at the ballot box. In fact, Mr Hammond, the Chancellor has had two opportunities to abolish this utterly ludicrous rule in either in his Autumn Statement or his Budget last week. There are tax penalties and charges if this is exceeded and you don’t have any unused relief from any of the three previous tax years 2015/16, 2014/15 and 2013/14. Pensions have the ability to go back 3 tax years if you exceed your annual allowance.

Shrinking heads?

To provide a little more context – ten years ago, the annual allowance was £215,000 in 2006/17, it rose each tax year to £255,000 by 2010/11. It was then slashed to £50,000 for 2011/12 and remained at that level until 2014/15 when it became £40,000. Today in 2016/17 it is likely to be £10,000 for many high earners.

Of course the Government knows what they are doing, by encouraging us all to save for our retirement and financial independence…. I expect that we will soon hear “lessons will be learned”. Oh and no, this is not fake news, its just unwelcome news.

Clients will be receiving a printed copy of Talking money this week, which has some more facts.

Dominic Thomas
Solomons IFA

You can read more articles about Pensions, Wealth Management, Retirement, Investments, Financial Planning and Estate Planning on my blog which gets updated every week. If you would like to talk to me about your personal wealth planning and how we can make you stay wealthier for longer then please get in touch by calling 08000 736 273 or email info@solomonsifa.co.uk

Email me to get in touch
Talking Money…. again2017-03-14T17:29:22+00:00
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