Pension Allowance Trap Causing Problems For NHS
Pension Allowance Trap Causing Problems For NHS


The pension system is extremely complicated and further complexity is routinely added. On example of this is the pension contribution allowance.

People are free to make contributions to pension plans, either themselves or via employers, and then receive tax relief at source or claimed later on the contribution. However, there are limits to the amount that can be contributed. Traps are in place based on either the amount contributed over the lifetime into the pension or annually (though unused pension allowance can be carried over from the previous three years). The traps essentially block any tax relief on the pension contribution and charge tax at the taxpayers marginal rate of the amount of the contribution. The charge is in the form of a bill from the Taxman.

For the vast majority of people in the UK, these traps cause no issue and the reason is simple, the allowance limit is set at £40,000, per year. The lifetime allowance is over a million pounds. Many will not hit these figures.

The NHS runs a scheme by which, 14 percent of a consultants pay is contributed to their pension plan. Again for a long time this would not cause issue. However, since April 2016 the pension allowance taper rule came into effect. This would effectively reduce the pension allowance down to a minimum of £10,000 for people with an income of £210,000. The tapering would start at £150k and take £1 away from the pension allowance for every £2 earned.

The taper was special in that is disregarded any pension contribution and looked at all overall income when looking at gross income. For NHS consultants this meant trouble.

Doctors earning more than £110,000 per year, but over £150,000 when every source of income (inc. pension contributions) would see their pension allowance trimmed down. Then, any of their pension contributions that exceeded the, newly lowered, allowance would be charged tax at the Doctor's marginal tax rate. The tax bill for that would appear on their doormat at some point later in the year once HMRC had done the calculation.

A fifth of Doctors responded by reducing the hours they work, nearly 50 percent are avoiding overtime and some, a third, even brought forward plans to retire in order to not end up working for free once the tax charge was applied - with the charge almost like a claw-back on pay.

As the problem arises from too much NHS pay going into their pension and exceeding allowance levels, some Doctors are taking on private work instead as the pay from that income can be structured by them in any way they like without affecting NHS pensions.

NHS Consultants have a top tier of pay around £105,000 and many exceed this pay. If 14 percent is contributed to pensions then it easy to see how the reduced annual allowances can be exceeded. The NHS plans to patch the issues caused by the allowance taper trap by allowing staff to take a '50/50' pay plan for up to ten years where only half the regular pension contribution is made, a similar measure to local councils who had the same problem.


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