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NHS staff’s annual allowance charges not paid by employer 90% of the time

Fewer than one in 10 NHS staff settle their annual allowance breaches through the scheme pays option where the employer meets the cost, according to wealth manager Quilter.

A Freedom of Information Request by Quilter shows that on average nearly 17,000 NHS staff breach the annual allowance on pension contributions each year.

But only 1,500 take advantage of the scheme pays option.

In 2014/15 when the annual allowance was cut to £40,000, nearly 21,000 staff in the NHS pension scheme breached the annual allowance, but fewer than 350 individuals asked the scheme to pay.

The gap means under 2 per cent took advantage of scheme pays in that tax year.

The annual allowance affects individuals savings into a pension and restricts the amount they can save tax free in any given year.

The annual limit was in excess of £250,000 as recently as 2010/11 but it has been cut dramatically and now stands at just £40,000.

Quilter points out public sector workers are particularly vulnerable because of their defined benefit pensions.

This is due to the way benefits accrued under a DB pension are calculated, and means NHS staff receiving a pay rise can easily see their pension contributions docked under an annual allowance tax charge.

This is particularly problematic for higher earners that are hit by the tapered annual allowance. It brings the maximum pension contribution before taxes apply to just £10,000 per year.

At the end of April, the British Medical Association wrote to chancellor Philip Hammond that doctors will start to reduce their working hours unless reforms are made to the NHS pension scheme.

Quilter pensions expert Ian Browne says: “The annual allowance is really complex anyway, and then when you add the tapered allowance on top things can get really muddy. It is the consequence of an intricately layered tax system that is in need of simplification.

“Anyone that may be affected by an annual allowance charge should think about seeing a financial adviser. They can help ensure you are making the most of your tax allowances and could save you huge sums.

“Likewise, the NHS should ensure it promotes the scheme pays option clearly as it seems thousands of eligible members may be unaware it even exists.”

He adds: “Public sector DB pensions are under all kinds of pressure at the moment, with separate legal cases from the British Medical Association, Firefighters and others claiming age discrimination against schemes that revised benefits down for younger members. If overturned, this could put great pressure on government, which has set aside £30bn to cover the cost already.

“Additional complications like processing scheme pays applications just add to the weight of pressure on public sector DB schemes.”


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There are 3 comments at the moment, we would love to hear your opinion too.

  1. Terry Mullender 8th May 2019 at 12:09 pm

    The solution is very simple. Close all public sector defined benefit occupational pension schemes to future accrual and welcome public sector workers to the real world….

  2. The employer (NHS Trust) pays not the scheme?

    Is this because NHS scheme is unfunded?

    Usually the scheme pays and benefits are reduced.

    When it comes to treating customers fairly I don’t think parliament have done that when it comes to tapered AA.

    Firstly, effectively changing the T&C’s of pensions by applying it in the first place but then to restorspectively reduce it further.

    I’m sure the FCA would frown upon any product provider who treated it’s customers in such a way.

  3. Sorry, meant to say I was referring to MPAA when it comes to retrospective changes.

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