The annual allowance limits how much your NHS pension can grow each tax year before triggering extra tax charges. Currently set at £60,000 (from April 2023), this threshold affects how you manage your pension growth and potential tax liability.
The McCloud remedy, being implemented from October 2023, adds an important dimension. This legal remedy addresses age discrimination in public sector pensions between 2015-2022. As a result, many NHS staff will have a choice between their legacy scheme (1995/2008) and the 2015 scheme benefits for this period. This choice could significantly impact your annual allowance position.
Due to this complex change, pension statements for 2022/23 have an extended deadline to 6 October 2024. The deadline for making scheme pays elections has also been pushed back to 6 July 2025 for active or deferred members, and 6 July 2027 for pensioner members.
For higher earners, the situation requires extra attention. If your income exceeds £200,000 (after pension deductions), your annual allowance might be ‘tapered’ down. The reduction starts at £260,000 of adjusted income, potentially lowering your allowance to £10,000 if you earn £360,000 or more.
From April 2023, there’s some good news: you can offset negative growth in your legacy scheme against positive growth in the 2015 scheme. This change helps manage your annual allowance exposure more effectively.
If you exceed your allowance, you have several options:
- Use unused allowance from the previous three tax years
- Pay the tax charge through your self-assessment
- Use ‘scheme pays’ where the NHS pays your tax charge in exchange for a reduced pension at retirement
For GPs, the situation is particularly complex due to how their pensionable income is calculated. They often need to estimate their position and may require accountant support to manage their tax obligations effectively.
To stay informed, request annual statements from your pension agency:
- NHSBSA for England and Wales
- SPPA for Scotland
- HSC for Northern Ireland
If you spot errors in your pension statement, perhaps due to backdated pay or incorrect service records, you can request a review. However, you must still meet tax return deadlines while any queries are being resolved.
Given the complexity of the McCloud remedy and its interaction with annual allowance rules, seeking professional financial advice is highly recommended, especially for higher earners or those with additional pension arrangements. The choices you make during the McCloud remedy period could have significant long-term implications for both your pension benefits and tax position.
Remember, pension tax issues are complex, and individual circumstances vary greatly. What works for one colleague might not be the best approach for you, particularly during this period of significant pension reform.