NHS Pensions Savings Statements are prompting enquiries on annual allowance charges.
Here is a reminder of the special provisions that apply to annual allowance charges of NHS clinicians in England and Wales for the 2019/20 tax year. Many will have recently received Pensions Savings Statements for tax year 2019/20 and may have questions about their annual allowance charges.
What did the NHS do last year about the tapered annual allowance?
NHS England and NHS Wales agreed to cover annual allowance charges incurred by clinicians coming from the NHS pension scheme. This excluded any charges due to AVCs. This was an interim measure for tax year 2019/20. They put this in place in an 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.
What do clinicians need to do?
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. This has to happen by the 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. The employer will then 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 and the scheme pays election happen.
What are pensions savings statements?
Pension Savings Statements are only provided automatically where the pension input has exceeded the standard annual allowance. This is £40,000 in a tax year. Clinicians who do not have one and may be subject to the tapered annual allowance should request one. It should take three months to get one.
Where a Pension Savings Statement is not 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.
What are the deadlines?
The deadline for the tax year 2019/20 NHS scheme pays election is currently 31 July 2021. The NHS extended the deadline for 2018/19 elections due to COVID-19, but it is best not to rely on this happening again. 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.
What about Scotland?
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.