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Pension Planning Couldn’t be More Important Now for High Earning NHS Pension Holders

It might be a bit of an understatement to say that the government’s NHS pension scheme membership and tapered annual allowance limitations have not been well received by the dental and medical communities. In fact, the British Medical Association (BMA), the UK’s biggest union and proponent for doctors, is lobbying for the removal of these restrictions for its members.


This does not constitute advice and advice should be sought in all instances before acting on it.


The BMA asserts that the standard annual allowance and tapered annual allowance disproportionately affects this group, more so than any other industry.

How pension allowances have changed

To give you a brief outline of pension allowances, the standard annual saving allowance for most taxpayers is £40,000 per year. This may seem generous, but this allowance has decreased dramatically over the past ten years, down from £255,000 as HMRC has tried to control tax relief expenses.

Normally, you would only need to worry about whether or not your contributions (combined with your employers) will exceed this limit before incurring a tax charge. Unfortunately, with the introduction of the tapered annual allowance in 2016, if your income and pension benefits outpace the limit of an adjusted income (all taxable income and pension savings minus certain tax reliefs) of £150,000 a year, your annual pension allowance is reduced below the standard £40,000.

So, for every £2 over £150,000 an individual makes, their allowance is reduced by £1, with a minimum annual allowance set at £10,000. But, if your threshold income (income less employer pension contributions) is no more than £110,000, your income will not be subject to the tapered annual allowance.

Many people find this confusing, and to be fair, the computations for adjusted income and threshold income (benchmarks used in tapered annual allowance) are highly involved. They require past years of tax calculations, pensions statements, your Total Reward statement, and other financial information so they’re best done by a professional.


Are doctors being disproportionately affected?

You can see why doctors believe they are getting a raw deal here. The BMA argues that with the salaries of doctors often surpassing the above-mentioned incomes, their savings have suffered and they are unfairly facing substantial tax bills, often in excess of thousands of pounds.

In the event you do owe for breach of the allowance, there are many ways to pay, such as enrolment in NHS scheme pay – but keep in mind you must complete and return the enrolment request before 31 July.

While it seems like you have plenty of time to decide, there is a lot of work that goes into determining whether or not you’ll be affected and a decision this big should not be rushed.


The NHS pension scheme rules have an impact that is more far reaching than just financial penalties

Also a thorn in the side of doctors and dentists is the NHS pension scheme. As members’ contributions are based on their salary band, they lack the freedom to reduce contributions and don’t have any other options such as requesting cash instead if they are nearing the threshold. Without this flexibility, many high earners are opting out of the scheme or turning down work so they don’t exceed the limit.

With the loss of these incentives, many professionals have cut back their hours and some are even considering early retirement in an effort to avoid essentially being penalised for their profession.

The cost, it seems, is just too great. This, unfortunately, results in the loss of quality medical professionals, leaving junior doctors without access to skilled mentors and training opportunities and ultimately, it is the British public who suffer the most.


We can help you

NHS dental and medical professionals with concerns are urged to get in touch with financial planning experts. Here at Dental & Medical Financial Services, we manage the required calculations to determine whether or not an individual might be subject to a potential tax charge as a result of the tapered pension allowance.

Additionally, we’re able to establish the individual’s ‘pension pot’ in relation to the lifetime allowance to confirm whether there is any cause for concern. Don’t delay, be sure to get your finances in order sooner rather than later.


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Dental & Medical Financial Services have been helping doctors and dentists to build and protect their wealth, whilst saving tax for over 25 years.
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