Pension has become one of the favourite topics in the world of taxation, and below is an overview of important points which GPs should be aware of.
Every taxpayer has an annual allowance of £40,000. If the pension growth exceeds the maximum limit of £40,000, then tax is payable on the excess pension growth. However, you can elect for this tax to be paid out of your pension pot through a “NHS Scheme Pays election”. When we prepare your tax return, we will estimate your pension charge, we will let you know and send you the election form to elect for the tax to be paid by the NHS pension agency from your pension pot. The reason for doing the Scheme pay election is purely for cash flow reasons; that is you do not have to find the cash to pay for the tax on the pension.
If your pension growth was below £40,000 in the past three years, you will have some unused allowance from previous years. This can be carried forward for 3 years.
Furthermore, if your adjusted income (that is your total income including your income outside the NHS after superannuation) is over £110,000 then your annual allowance will be tapered. If your earnings are high, and you are over the threshold, this means that your allowance is “tapered down” that is, your annual allowance is reduced by £1 for every £2 you earn over £150,000. Your allowance will be tapered down to a minimum of £10,000.
If you want to reduce your annual allowance charge, you would need to reduce the growth of your fund. This could be leaving the scheme for a short period of time – you will still benefit from the pension growth, and you can use up any relief that would have been available to you in the years you were not in the pension scheme; when you re-join in the pension scheme. It means your pension will grow slower, but will reduce the tax on your pension. Alternatively some people leave the scheme completely and hence do not have tax to pay on your pension.
The most important thing is we get your pension information, to get an idea of the size of your pension and a better idea of the growth and any unused relief. There are 2 documents that help us with this:
I. Total rewards statement – This is requested online and the link is https://www.totalrewardstatements.nhs.uk/login
II. Annual allowance statement – if you are going to be affected by a tapered annual allowance you should receive this automatically. However it is a good idea to request the report and the NHS pension agency will eventually send the report in about 12 weeks.
Once we have the above information we can make a more accurate estimate of your pension growth and tax implications regarding your pension.
Also a good thing to do is to get some detailed financial advice, this will help you assess your options and give you advice on the best route for you depending on your personal circumstances.
If you have any further queries, please contact: