NHS Pension Scheme and 2019/20 Annual Allowance charges
Pensions Savings Statements are prompting enquiries on annual allowance charges. Here’s a reminder of the special provisions that apply in respect of annual allowance charges of NHS clinicians in England and Wales for the 2019/20 tax year.
Many clients working in the NHS will have recently received Pensions Savings Statements for tax year 2019/20 which may prompt enquiries relating to their annual allowance charges.
Late last year NHS England and NHS Wales agreed to cover any annual allowance charges incurred by clinicians in respect of inputs to the NHS pension scheme. This excluded any charges due to AVCs. This was an interim measure for tax year 2019/20 put in place in attempt to resolve staffing issues caused by the tapered annual allowance. The significant increases in the Threshold and Adjusted Income limits has attempted to resolve this for 2020/21 onwards.
NHS clinicians will still need to calculate any annual allowance charges for 2019/20 in the normal way. To ensure they benefit from the special measures they then need to declare the charge on their tax returns by 31 January 2021 deadline and elect for scheme pays.
When the member takes benefits, the scheme pays reduction will apply to reflect the annual allowance tax charge and the employer will provide a contractual payment of income equivalent to the reduction in the pension. There have been no recent updates on exactly how this will work but for now the key thing is to ensure the calculations are completed and the scheme pays election is made.
Pension Savings Statements are only provided automatically where the member’s pension input has exceeded the standard annual allowance of £40,000 in the tax year. Therefore, if you are subject to the tapered annual allowance you should request a statement, where you haven’t already received one, as soon as possible. The statements should be issued within three months of a request.
Where a Pension Savings Statement isn’t received in time (this will primarily be the case for GPs) they should make an estimate of the annual allowance charge on their tax return and in the scheme pays election. The scheme pays election can be amended for up to four years following the usual scheme pays election deadline.
The deadline for the tax year 2019/20 NHS scheme pays election is currently 31 July 2021. Note the deadline for 2018/19 elections has been extended due to COVID-19, but it is best not to rely on this being repeated. In addition, technically HMRC can charge interest and penalties for tax year 2019/20 from 31 January 2021 and it is not clear this will be covered by the contractual payment. Therefore, the elections should be made as soon as possible.
It’s also important to note that the proposals above only apply to NHS England and NHS Wales. Clients who are members of the NHS Scotland Scheme will have to pay any annual allowance charges for 2019/20 in the normal way.
The NHS frequently asked questions relating to the proposal are available here.