NHS pension consultation demonstrates why pensions tax system needs fixing

Yesterday the Department of Health and Social Care released a consultation on changes to the NHS pension scheme measures to fix where it “doesn’t work properly with the tax system”. Among other things one small but high impact change is that pension revaluations currently granted on 1st April will move to 6th April.

Stephen Barclay told the Times that this change – with no impact on the benefits individuals ultimately receive – would (in the example he gave) reduce the savings subject to Annual Allowance charge for a typical senior doctor from £49,337 to £1,397. We calculate that means a drop in the pensions tax penalty for continuing to work, from an eye watering £22,000 to a more manageable £600.

Karen Goldschmidt, Partner at LCP said: “What better demonstration that the detailed and inflexible way that the Annual Allowance tax law interacts with pension scheme rules gives some extraordinary and unfair impacts. It’s great that the Government are addressing a specific issue in the NHS pension scheme but in the private sector we are grappling with a very similar issue on GMP equalisation and particularly if using conversion – Stephen Barclay’s example shows why we really need the legislative solution that in April HMRC hinted might be forthcoming to help speed up equalisations across the country.”