NHS & FRONTLINE STAFF – COVID19

TODAY’S BLOG

NHS & FRONTLINE STAFF COVID-19

I came across a good article (26/03/2020) by Moira Warner, a manager at Royal London. I have made some minor alterations, but otherwise this is a piece not written by me. I am therefore thankful to Moira and Royal London and take responsibility for its reproduction, noting that the article has the usual social media sharing functionality anyway.

As the volume of overtime undertaken by frontline NHS staff increases exponentially in response to the Coronavirus crisis, we think an update on the pension issues potentially impacting doctors is timely.

CLINICIANS AND THE TAPERED ANNUAL ALLOWANCE

Changes to the tapered annual allowance announced at the March 2020 Budget and expected to lift all but the highest paid out of the “taper trap” are due to take effect from 6 April 2020. In view of the impact the exceptional amount of additional shift work is having on the threshold income of healthcare professionals right now, it’s worth remembering the interim measures put in place for clinicians who may face an annual allowance tax charge in relation to tax year 19/20.

In England & Wales, NHS employers will pay clinicians’ annual allowance charges incurred in 2019/20. This is achieved by the employer making a contractually binding commitment to “fully compensate” the individual for the impact on their retirement income of a “scheme pays” deduction.
In Scotland, NHS staff have been given the option of taking the value of their employer’s pension contribution as an addition to basic pay.

AWAITING CONSULTATION

We’ve not yet seen a Government response to its 2019 consultation on increased flexibilities for the NHS pension scheme, although the Chancellor has confirmed that proposals to allow senior clinicians to receive extra pay in lieu of pension contributions will not be taken forward.

It may be that the dust gets brushed off some of these previous proposals, if it turns out that the overhauled tapered annual allowance doesn’t go far enough to protect the most dedicated NHS staff working the longest hours from an annual allowance tax charge.

NHS RETIREES RETURNING TO SERVICE DURING THE OUTBREAK

In a widely-anticipated move, the Government is encouraging retired health and social care professionals to return to the NHS to join the fight against Covid-19. In order to prevent post-retirement employment having disadvantageous consequences for the pension income of such individuals, emergency amendments to NHS pension regulations have been tabled.

These form part of the Coronoavirus Bill 2019-21 which received Royal Assent on 25 March 2020. The amendments (which the Government will have the power to implement immediately or retrospectively) apply across the United Kingdom and have 3 effects:

The pension income of special class status holders who return to NHS employment won’t be abated (suspended). Special Class status holders are nurses, physiotherapists, midwives and health visitors in post on or before 6 March 1995 and Mental Health Officers (MHO) with at least 20 years’ MHO experience and in post on/before 6 March 1995. The wider pension abatement rules remain unchanged. In particular this means that individuals who retired “in the interest of efficiency of the service” could still have their pension suspended on return to work.
The pension income of 1995 Section NHS members who return won’t be suspended if they work more than 16 hours per week in the first calendar month following retirement.
Members who have flexibly retired using the NHS “draw down” facility will not be required to maintain a reduction in their pensionable pay of a minimum of 10%

There is no proposal to amend regulations prohibiting pensionable re-employment of 1995 section retirees. Any clients who have retired and drawn 1995 section benefits will therefore be able to return to the NHS, but will not be able to resume pensionable employment under the NHS pension scheme. Employers will need to enrol returners who are eligible workers into an alternative pension scheme.

Please also note that these measures are temporary. The Government has stated that a six month notice period will be given to staff and employers before they are disapplied.

DEATH BENEFITS

Recent social media chatter suggests there’s concern amongst health care professionals who have made taxation-related decisions to opt out of the NHS Pension Scheme, that their loved ones will no longer be entitled to any scheme benefits in the event of their death. So clients need reassurance that this is not the case.

Although the loved ones of individuals who’ve opted out will no longer be entitled to death in service benefits if the deferred member passes away, they remain entitled to death in deferment benefits. These include a lump sum death benefit and both eligible adult survivor’s and eligible children’s pensions.

Further details on calculation of these benefits can be found in the 1995/2008 and 2015 NHS pension guides for England and Wales – as well as the guides for Scotland and Northern Ireland.

If you wish to consider additional life assurance cover please get in touch. Given the current context, applications for minimal levels of cover, before requiring medical underwriting would likely be the most prudent approach.

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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NHS & FRONTLINE STAFF – COVID19Dominic2025-01-21T16:04:36+00:00

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.

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

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TAPERED ANNUAL ALLOWANCE – NHSDominic2023-12-01T12:17:03+00:00

DOCTOR, DOCTOR… IN THE TELEGRAPH

TODAY’S BLOG

DOCTOR DOCTOR… IN THE TELEGRAPH

You may have come across my details in a piece in The Telegraph on Monday 10 September 2018 by financial journalist La ura Miller. Laura outlines a problem that is being observed in hospitals around the UK, in that some doctors are in the ludicrous position of effectively being forced to reduce their available hours due to the additional taxes that they will suffer for additional income. This has the inevitable potential to create longer waiting lists.

Before we go any further, let me say that Laura asked me to check some sums from a Consultant doctor who was making the point about the annual allowance excess taxes. I have made no secret of the fact that I believe the tapered annual allowance is an utterly stupid Government policy. It isn’t the first and of course will not be the last.

THIS IS GOING TO HURT

My only concern is that some may interpret the information as “greedy doctors worry about tax and so work less”. So I wish to make one point crystal clear. I have advised medics for over 25 years. I have met hundreds of them. I have never, NEVER, not even once met one that was motivated by money as a career choice. The early career of a junior doctor is particularly traumatic and frankly the NHS and Department of Health should be ashamed of the working pressures and timetables that they put them under. If you need any convincing, simply have a look at Adam Kay’s Book – “This is Going To Hurt”. Yet the system continues, because it is always under strain and there are not enough doctors to do the work within “normal” working hours or shifts.

DOCTORS EARNINGS

It is true that some doctors can earn very good incomes. The £10,000 annual allowance only applies to those with income over £210,000 – which is a lot of money by most standards. However, these are people that are highly skilled and at the top of their profession, have given way more than their pound of flesh and are constantly scrutinised for errors and lambasted by politicians and media whenever it suits. For the record, this is not Laura’s intent.

The rather ludicrous rules also impact any doctor whose pension income improves by more than £2,106 in a year. This too would push them over the standard annual allowance and potentially suffer excess tax charges. The tax charge is treated effectively as income tax at the highest rate, despite the fact that the pension has not actually been paid to them, conceivably might never be paid to them if they were to die before retirement. In essence a tax on future, yet to be received income. This sort of rise in pension benefit could come from something as innocuous as moving up the grades, or perhaps for impressive work in the form of Clinical Excellence Awards – or even returning to a full-time post.

HEARING PROBLEM

This is all to do with the way in which the Annual Allowance is calculated for those in final salary schemes. I wrote to the previous Chancellor, twice, without reply on this subject when he presided over the introduced rules. Perhaps Laura will have more success.

Suffice to say this is a complex piece of pension planning, a headache that neither the doctor, nor the NHS really should have to waste time on. Yet my advice is to all doctors is to request a Pension Annual Savings Statement as well as their Total Rewards Statement and ensure all payslips are carefully retained – as well as information about any and every form of income they receive from all possible sources. This is more unpaid work, increased stress and bureaucracy to satisfy some utterly numpty thinking at HM Treasury…. Nothing new in that though is there.

Dominic Thomas
Solomons IFA

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DOCTOR, DOCTOR… IN THE TELEGRAPHDominic2023-12-01T12:17:52+00:00

Public Sector Pay Rise

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Public Sector Pay Rise

The Treasury announced yesterday that various people will be getting an increase in their salaries. This is due to come into effect in October 2018. This is heralded as the biggest public sector pay rise in quite some time, which is probably the case, but that is largely due to the fact that most have had their salaries frozen or pegged below inflation as a result of the austerity measures. Remember that austerity was brought in to reduce the amount of overspending (spending exceeds income) each year.

Anyway, whatever your political persuasion, finally around a million people will be taking home a larger salary… or will they? Well most probably will. However some higher earners are more likely to be exposed to the problems of the annual allowance. This is now about pensions, but directly impacts income.

Since the start of the 2016/17 tax year, the annual allowance has become more complex. Those earning over £150,000 in all forms of income (rent, earnings, savings interest etc) have a reduced annual allowance (the amount that they can put into a pension). The standard annual allowance is now £40,000 but this is “tapered” down to just £10,000 at a rate of £1 for every £2 over £150,000. There will be some, perhaps many that say, something to the effect “you have lots of money, so what if you cannot pay more into your pension”.

NHS Pension, Teachers Pension and similar..

These big State pensions were (and still are) brilliant for most people. You get a guaranteed income for life, that rises broadly in-line with inflation. Its based as a proportion of how long you are an employee and member of the pension and your final salary. The original NHS pension was a 1/80th scheme. You work say 36 years (24 to age 60) and suppose you are a top of your game NHS Consultant, earning around £120,000 from work with the NHS, then you would expect 36/80 (45%) of your final salary (hence the term) for life. That’s £54,000 a year in this example.

However, all these schemes became too expensive, successive Governments mucked up the calculations, getting members to contribute more to the pension and also changing the terms. Moving the goalpost further to 65 and then later to the State Pension Age (SPA). They also changed the rate at which the pension builds up from 1/80 and removed the lump sum as standard.

So what?

Well, if you are a high earner or have other sources of income that push you over £150,000 you start to have a reduced annual allowance. As no Government in recent history has been truly keen on simplicity or transparency, matters get complicated. So despite the term “annual allowance” this only applies to investment based pensions, not Final Salary (sometimes called Defined Benefit) pensions. No. These have a different sum. I won’t go into great detail, but in essence, the calculation looks at how much your pension has increased by over the course of the tax year. So just suppose you are in the old NHS scheme still (if over 50 that is entirely possible). You earn say £110,000 from the NHS and have Private Practice which adds considerably more. Your pension increased by 1/80th or £1,375. The way you work out your annual allowance “value” is this figure x16 and then add the increase in the lump sum value. So that makes £26,125.

OK, it isn’t quite this simple – you actually calculate the opening and closing values of your total pension, make an allowance for the Government approved rate of inflation, subtract one from the other and hey presto, there is your “pension growth”. So now that you have a pay rise half way through the tax year (October)… your final salary will be higher on 5th April, so will the sums.

Exceeding the Annual Allowance?

Well, if you do, you can use up any unused allowances from the 3 prior tax years. If not, any amount above your tapered annual allowance, or even standard one, will be taxed at your highest rate of tax. So you pay tax on money you have not had… quite a lot. This has got more financially engaged Consultants wondering if they should stay in the scheme at all. Kerboom…

Oh and just for good measure, you are responsible for reporting your excess to HMRC under self assessment rules. Naturally this really requires lots of advice and this is one area where data is needed. So all those payslips you’ve been keeping are needed. All the Total Rewards Statements (NHS) are needed and to keep the theme going, if you are in the NHS, you really ought to request a Pension Annual Savings Statement (PASS)… which you will need every year going forwards, or until the rules change.

So yes, you have a pay rise….

Dominic Thomas
Solomons IFA

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Public Sector Pay RiseDominic2023-12-01T12:17:56+00:00