13th September 2019
The annual allowance is a limit to the total amount of contributions that can be paid to defined contribution pension schemes and the total amount of benefits that you can build up within the pension scheme each year, for tax relief purposes. The annual allowance is currently capped at £40,000. If you exceed the annual allowance in a year, you won’t receive tax relief on any contributions you paid that exceed the limit and you will be faced with an annual allowance tax charge.
The tapered annual allowance came into force as of 6 April 2016 for high earners. For every £2 of income above £150,000 per annum, £1 of annual allowance will be lost. The maximum reduction will be £30,000 meaning that anyone earning over £210,000 will have their annual allowance capped at £10,000.
The Department of Health and Social Care (DHSC) is consulting on a new set of proposals to address the problem of pension tax charges faced by senior NHS doctors who breach their tapered pensions annual allowance. The government is concerned that high-earning clinicians are reducing their workload, turning down extra work and responsibilities, or retiring early, with consequences for NHS capacity and delivery of NHS services.
DHSC therefore proposes to amend NHS pension scheme rules to provide a new ‘flexible accrual’ facility. This will allow eligible members to:
- choose before the start of each scheme year (1 April) a personal accrual level in 10% increments and pay correspondingly fewer employee contributions, for example, 50% accrual with 50% contributions, setting their accrual at a personal ‘safe’ level that is unlikely to lead to a tax charge
- fine tune their pension growth towards the end of the scheme year by updating their chosen accrual level when they are clearer on total earnings, for example, go from 50%:50% to 60%:60%.
The updated accrual level would be higher than initial level and have retrospective effect from the start of the scheme year. Contribution arrears from the higher accrual level would be payable by the member and employer before the end of the scheme year.
Comments are invited by 11 November.
For further information and assistance, contact Katharine Arthur, or your usual haysmacintyre contact.