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The Department of Health and Social Care will shortly open a new public consultation proposing full flexibility over the amount senior doctors put into their pension pots. This replaces the previous 50:50 proposal put forward last month (which was heavily criticised).
Starting from April 2020, the new rules would allow senior clinicians to set the exact level of pension accrual at the start of each year. For example 30% contributions for a 30% accrual rate, or any other percentage in 10% increments depending on their financial situation. This would give them room to take on additional work without breaching their annual allowance and facing tax charges.
These new proposals formalise a similar version of what is already in place, known by doctors as the ‘hokey cokey’ option, where members opt in and out of the scheme for a certain period each year to try and manage their pension input amounts and avoid annual allowance charges.
Where members choose to reduce their contributions and accrual rate, employers would then have the option to recycle their unused contribution back into the clinician’s salary. As this is an option, it will rely on the policy of each individual NHS trust.
Guidance will also be given to employers setting out how they can provide flexibility at a local level during 2019/20 for clinicians to do extra work without breaching limits for pensions tax relief.
This will allow affected staff to opt-out of the NHS pensions scheme mid-year. Their employer will be able to use discretionary flexibility to maintain the value of the clinicians’ total reward packages.
The NHS Pension Scheme is recognised as one of the most generous in both the private and public sector. But the tapered annual allowance means that many higher earning clinicians are facing annual allowance tax charges. Around a third of NHS consultants and GP practice partners have earnings from the NHS that could potentially lead to them being affected by the tapered annual allowance.
Alongside the proposals for full flexibility, HM Treasury will review how the tapered annual allowance supports the delivery of public services such as the NHS. HM Treasury will continue to engage with the NHS, the British Medical Association (BMA) and other stakeholders as part of this process.
The government announcement is available here.
If you are a doctor or senior clinician and are experiencing maximum funding issues with your retirement planning, there are other options that are worth considering. Please contact one of our specialiststoday to discuss tax efficient ways of funding your retirement.
The Pensions Regulator regulates occupational pension schemes. A pension is a long-term investment not normally accessible until age 55. The value of your investment (and any income from them) can go down as well as up and you may not get back the full amount you invested., which would have an impact on the level of pension benefits available. The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation which are subject to change in the future.