Doctors lobbying for pension changes

Hospital doctors and GPs are lobbying the government to amend the pension tax rules as the current system of restricting tax relief on pension contributions means many doctors are paying almost all of the extra salary back in tax if they take on additional responsibilities or work additional shifts. This is an issue that doesn’t just affect doctors as it potentially restricts the tax relief available to other individuals with high income.

The NHS Pension Service have alerted members of the NHS Pension Scheme that they could receive a tax bill if their pension savings exceed limits set by HM Revenue and Customs (HMRC). These limits are known as the annual allowance, which is calculated each year, and the lifetime allowance, which is calculated based on overall pension savings.

The normal annual pension allowance is currently £40,000 each tax year and limits the amount of pension contributions which qualify for tax relief. The limit covers the combined contributions paid by the taxpayer and their employer. A tapered annual allowance was introduced in April 2016 with the intention of reducing pension tax relief for high earners.

It applies to those with adjusted incomes of over £150,000 and threshold income in excess of £110,000. The rate of reduction in the annual allowance is by £1 for every £2 that the adjusted income exceeds £150,000, up to a maximum reduction of £30,000 at £210,000. This is a complex calculation and we can help you plan to minimise the impact of the rules as the individual is taxable on the excess pension contributions over the annual limit.

Request that the pension charge is paid by your fund by 31 July

The Pension Annual Allowance tax charge depends on the individual’s marginal rate of tax. Where their income exceeds £150,000 it would be at 45%. Thus if the pension input for 2018/19 Was £40,000 and the limit is tapered to £10,000 the excess of £30,000 would incur a £13,500 tax bill on top of their normal tax liability.

You can ask your pension provider to pay HMRC out of your pension fund if you’ve gone over your annual allowance and the additional tax is more than £2,000. The deadline is 31 July 2019 for the 2018/19 tax year.

For further information on the pension changes for Doctors, please contact Andrew Kershaw on 023 8046 1245.