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NHS Pensions annual allowance charge compensation

NHS Pensions annual allowance charge compensation

Tuesday, 15 December 2020

In recent years, many working in primary care have faced large and unexpected tax bills caused by changes to pensions tax rules and the annual allowance. These changes have led to many clinicians who are members of the NHS Pension Scheme reducing their working hours or even retiring earlier than planned, putting increasing pressure on the NHS.

Earlier this year, NHS England introduced a policy for one year to help combat the problem. Any clinicians who are members of the NHS Pension Scheme and who, as a result of work undertaken in 2019/20, face a tax charge in respect of excess growth in their NHS pension benefits above their annual allowance, will be able to have this charge settled by the NHS Pension Scheme with no detrimental impact on their retirement benefits.

‘Scheme pays’ elections have been an option for NHS Pension Scheme members since 6 April 2011. These elections see any tax arising on excess pension growth settled by NHS Pensions on the member’s behalf.  However, the settlement is effectively treated as a loan which is recovered from the member via a reduced pension when benefits are eventually taken. Interest is also charged on the loan, so an election can be a very expensive way of settling the tax charge.

For 2019/20 only, you can make both a ‘scheme pays’ and compensation policy application. The latter will see NHS England enter into a contractually binding commitment with the NHS Pension Scheme member to fully compensate their NHS pension benefits on retirement for the effect of the scheme pays deduction.

You should have received a Pensions Savings Statement for 2019/20, by 6 October 2020, if you exceeded the standard £40,000 annual allowance. However, if your taxable income was greater than £110,000, you may not be entitled to the full £40,000 allowance due to possible tapering being applied. You could therefore be in a position where your pension growth exceeds your annual allowance and receive no notification from NHS Pensions as they do not know if you are subject to tapering or not.

Please also note that, if you are a type 1 practitioner, NHS Pensions will not know what your pensionable earnings are until PCSE has processed your superannuation certificate for the year (which has a filing deadline of 28 February 2021).      

In order to access the 2019/20 compensation policy, you MUST do the following two things:

  1. Complete the scheme pays form. The deadline for submission to NHSBSA is 31 July 2021. Once you have completed this:
  2. Download the application form.

If you work in secondary care, download the application form, complete your part and ask your employer to endorse the form by confirming that you worked for them in a clinical role during 2019/20.

If you work in primary care as a GP Partner, salaried GP or self-employed locum, download and complete the application form. NHS England is working with PCSE on the exact process to upload your form and further information will be communicated in due course.

The application form can be found here.

The deadline for completion of the application form is 31 March 2022.

Once the scheme pays election and application forms have been submitted, NHSBSA will write to you to confirm receipt. Any missing information will be requested before confirming your entitlement. There is then nothing further to do until you retire.

You should note that if you have completed an estimated scheme pays form, as you did not have final pension growth figures, you should make sure that this is updated as soon as you have confirmed figures. You will not need to resubmit the application form.

Compensation payments will automatically be made when you apply for your NHS Pension benefits and you will not need to apply for these separately.

The NHS website has lots of information you may also find useful. 

The calculation of pension growth is a particularly complex area and we would strongly recommend that you seek advice from an independent financial advisor who has specialist knowledge of NHS Pensions before taking any action.

Please get in touch with a member of our Medical team should have any questions. You can find contact details on the Our People section of the Larking Gowen website. Alternatively, call 0330 024 0888 or email enquiry@larking-gowen.co.uk.


Louise Dean

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