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Categories:Pensions

NHS delays pose threat of pension 'calamity'

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High-earning NHS pension scheme members are being warned about delays in getting statements of benefits ahead of the April deadline for claiming fixed protection.

In March last year, Money Marketing revealed that up to 100,000 public sector workers could be better off opting out of generous final-salary pension arrangements as a result of Government pension tax regime reforms.

Under changes announced in October 2010, the annual allowance for pension saving was slashed from £255,000 to £50,000 from April 2011. The lifetime allowance will be reduced from £1.8m to £1.5m from April this year.

Contributions over the annual allowance incur a tax charge of 50 per cent while contributions that are over the £1.5m lifetime allowance will be taxed at 55 per cent.

Anyone who wants to apply for fixed protection on their pension fund or opt out from the scheme altogether needs to do so before April 5.

However, IFAs say the NHS superannuation scheme is taking at least three months to respond to requests for a statement of benefits.

Standard Life head of pensions policy John Lawson (pictured) says: “Getting statements of benefits from the NHSSS is proving a problem. IFAs say it is taking a minimum of three months, so anyone wanting to claim fixed protection or opt out needs to put in a request no later than this week.

“Anyone who does not protect their fund and continues to contribute into the pension scheme could face an enormous tax charge.”

Richard Jacobs IFA director Richard Jacobs says: “We have not been able to get any information out of the NHS. This is a potential calamity waiting to happen. I have had to put so many disclaimers in my letters to clients on this subject that the advice is not worth the paper it is written on.”

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Readers' comments (3)

  • I am not sure why getting information is proving to be such a problem. My clients requests are being handled within 4-6 weeks. I only deal with GPs and therefore have been fully aware of the implications of tax changes and therefore started assessing clients last year. There should be no need for last minute panic.

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  • Anonymous - could not agree more with you.There is so much misinformation and incorrect information out there at the moment, it is untrue. I have done reports for 4 or 5 high earning practitioners and 0fficers in their mid 50's and applying for fixed protection has not made sense in any of the cases. You have to understand how the nhs deal with a lifetime allowance charge, take into account that opting out of the scheme means that deferred benefits escalate by cpi only and not cpi plus 1.5%. You have to remember that opting out means loss of DIS benefits and most of the ill health benefits. You also have to remember that opting out of the scheme means that deferred benefits do not escalate by cpi until 55, after which the revaluation is paid when you take pension benefits. There are implications over the widow's pension as well.

    As far as getting info from NHS pensions over the phone, I have always found them very knowledgeable and helpful. Benefit statements are taking 6 weeks.

    Having said all of this, trying to get members to sit down and agree to review the situation - well that's another story.

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  • GPs and dentists have fewer options as they are in the CARE section. If they are a) close to retirement and b) close to or over £1.8m it may make sense to opt-out and claim fixed protection and avoid a 25% tax on £300,000 worth of benefit (an effective tax charge of £75,000). If staying in is worth more than the tax charge they would avoid by opting out then they should stay in regardless of any lifetime allowance charge.
    Hospital doctors and dentists in the 80ths final salary section have different options. For them, it is possible to continue accruing benefit AND claim fixed protection because of the salary freeze and the current high rate of CPI. It may be possible for them to stay in for several years in this way without losing fixed protection.
    I would encourage IFAs with doctors in this situation to claim fixed protection if they are above £1.5m or expect to be by retirement.
    Additionally even these doctors might be better off opting out because statutory revaluation of deferred benefits (GMP 4%, excess pre 2009 CPI up to 5%, excess post 2009, CPI up to 2.5%) may be worth more than earning a further 80th pension and 3/80th cash on a frozen pensionable salary. This option might suit older doctors with no promotion prospects.
    This is a complex area and there is no 'one size fits all' solution.
    As for the 3 months delay, many IFAs have told me it is taking this long. Even if it is only 6 weeks, time is still tight.

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