Pensions lifetime and annual allowances: the impact on the NHS
Updated 21 April 2020
21 April 2020
The tax implications of the lifetime and annual allowance on clinicians who are members of the NHS pension scheme has been in the press since early 2019. During 2019/20, senior clinicians were refusing to take on additional work or were taking early retirement to avoid large tax bills which are at a rate higher than the current tax rates.
This ‘How it works’ briefing sets out the background to the issue and points members at useful guidance. The briefing does not include any advice as the HFMA does not provide financial or pension advice. The briefing has been updated to take account of the recent announcements in relation to 2019/20 and 2020/21.
The issue at the heart of this debate is the limit to the contribution that individuals can make to their pension scheme each year and the size of the pension pot without being subject to tax – the annual allowance and the lifetime allowance. The annual allowance was significantly reduced in 2011, but in 2016 it was subject to a taper which means that more highly paid individuals are being impacted and are having to pay additional tax. The annual allowance and lifetime allowance are applicable to everyone paying tax in the UK – this is not an NHS specific issue or even a public sector specific issue.
A number of schemes to mitigate the impact of this issue were proposed in 2019/20 – some of which were taken up. In the March 2020 budget the Chancellor announced an increase to the two tapered allowance thresholds – this increase is intended to mean the vast majority of members of the NHS pension scheme will now be unaffected by the annual allowance tapering based on their NHS income.