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Impending NHS pension deadline for doctors

There are some important pension deadlines coming up and many doctors risk missing out on the chance to have their 19/20 Annual Allowance tax bill paid by the government. The following article explains what doctors need to know.  Prefer to listen? Then this podcast goes into more detail including the relevant deadlines. Medics’ Money delivers free financial CPD like this article to over 30,000 doctors. Join us here. In 2020-21, 1,358 GPs and hospital doctors in England and Wales took voluntary early retirement or retired because of ill health, up from 401 in 2007-08.  The total number of doctors retiring rose by 21 per cent and current figures suggest retirees are getting younger.  50,000 workers opted out of the NHS pension scheme in 2019/20, despite being offered compensation for any Annual Allowance charges incurred that year.

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So, what is going on?

Pension taxation is a highly emotive subject which has much trauma associated with it.  Since the Taper was introduced in the 2016/17, it has caused major disruption to NHS services as people attempted to earn less, to escape the Taper tax-trap, some people even choosing to remortgage or sell properties, in order to “protect” their pension from the erosion of Scheme Pays charges.  In 2020/21, Rishi Sunak raised Tapering thresholds which has now removed most people from the disproportionate tax charges levied by the Exchequer, but if you are lucky enough to have taxable income which exceeds £200,000 per annum, the chances are that you are unlucky enough to be subject to Tapering as this regime remains in place for higher earners.

What is “Scheme Pays”?

This is a mechanism which allows the NHS pension fund to be used to pay the AA charge.  The charge then rolls up as a debt attracting high rates of cumulative interest and the final loan balance is then converted into an actuarial reduction at retirement.  

What is the Annual Allowance Compensation Scheme?

In an attempt to persuade doctors to increase hours, The Treasury authorised a scheme (funded by NHSE/I) which allowed registered clinicians in active service, to reclaim Annual Allowance charges relating to the 2019/20 period.  This will be facilitated by using the ‘Scheme Pays’ process.  It means that when you retire, you will be able to claim compensation for any Scheme Pays reductions relating to 2019/20.  These payments will be made monthly into your bank account and you will receive an annual statement setting out expected payments. 

What’s the catch?

Your final retirement pension will still be reduced by the relevant sum at retirement, but you will receive another payment from NHSE/I which will be grossed up for all applicable taxes at the time of payment.  The legal basis for this offer is found in Section 112 of the NHS Act 2006 and underwritten by the Government.  If the relevant NHS Body no longer exists The Secretary of State for Health and Social Care will take full responsibility for this payment. Rachael Hall is an Independent Financial Adviser who specialises in the NHS Pension and you can contact her here.

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What medical school didn’t teach us about money

“What medical school didn’t teach us about money” will give doctors a step by step plan to transforming your financial future. Enter your details to download your copy now

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