Pensions Lifetime Allowance Limit Frustration – What Can I Do?

Q. I am a Consultant Doctor in my early 50s and have been in the NHS Pension Scheme since age 23.

My 30 years or so service has given me a decent NHS Pension projection, and this was something I was banking on (as well as a personal pension fund my accountant suggested when I started private practice).

However, attending a talk at my hospital given by a financial adviser, I was alarmed to hear that there is a limit on how much pension I am allowed to have!

This Lifetime Allowance includes both my NHS and personal pensions and apparently I am already over the limit, and will be taxed on any excess!

All my colleagues are now talking about opting out of the NHS Pension Scheme.

Is there anything I can do?

A. Yes, this is a massive issue at the moment for virtually all our clients, and is causing much alarm and uncertainty.

The government are out to clobber ‘pension rich’ people, and looking at figures from HMRC, the tax collected in 2015/16 from those who exceeded the pot limit was £126 million!

This will almost certainly get worse as the limit then was £1.25m, but is now £1m. This means it is the norm now to be thinking about opting out of the NHS Pension Scheme at your age.

What makes things worse is that like yourself, Consultants have commonly invested in personal pensions and with significant stock market gains are potentially penalised even more.

Looking at your own situation, with the information you have provided:

NHS Pension value – £1,078,125

Personal Pensions – £196,000

Total – £1,274,125

On the face of it you have a problem with the allowance now being at £1m. However, there are ways to help.

We would suggest the following plan of action, and detailed instructions will come separately:

Obtain from the NHS and your private company the values as of 5th April 2016. This will give you the information required to apply for something called Individual Protection 2016.

This, based on your own values, means that you can obtain your very own Lifetime Allowance limit up to a value of £1.25m (the previous limit).

As your figures are fairly recent, we guestimate that your own protection would be £1.25m.

In addition, when you take your NHS Pension, you can choose to take less pension and more lump sum (commutation) which helps lower the value when working out the calculation.

You will also need to consider opting out of the NHS Pension Scheme and not investing into your personal pension scheme from now on as future accrual will compound the amount of additional tax you will need to pay (note that this will reduce your NHS Pension death in service benefits).

We also discussed, as you have children and an inheritance tax problem, that you consider naming the children as beneficiaries on your personal pension.

This will potentially save your family nearly £80,000 in inheritance tax.

Finally, as you currently have no idea what you need in retirement, we recommend you build your own financial plan for your peace of mind.

As discussed, the above suggestions need to be double checked.

Of course, as pensions are very much at the whim of politicians, the Lifetime Allowance could be changed again at any time!

NB: We recommend all doctors & dentists check their own position – it could save you a lot of money.