Annual allowance for NHS pensions

What is the annual allowance?

The annual allowance for the 2022/23 tax year is £40,000 and each year this is compared with your pension input amounts. Your pension input is defined as the increase or growth in the capital value of your NHS pension benefits across all pension schemes. Any growth in excess of the annual allowance is subject to the annual allowance excess charge and is taxed at your marginal rates, and needs to be included on the supplementary pages of your tax return.

Tapered Annual Allowance

The annual allowance is reduced or tapered where an individual has:

• ‘Threshold income’ in excess of £200,000 and
• ‘Adjusted income’ in excess of £240,000

In these cases the standard annual allowance is reduced by £1 for every £2 the threshold income is in excess of £240,000, down to a potential minimum of £4,000.

The Brought forward allowance

If the growth in your scheme exceeds your annual allowance in a given tax year, it does not necessarily mean that an excess charge will be incurred. This is because any unused annual allowance from the previous three tax years can be brought forward to the current tax year to increase the annual allowance available.

Scheme pays

In cases where there is an annual allowance excess charge it is possible to submit what is called a scheme pays election. The election requires NHS pensions to pay some or all of your annual allowance excess charge out of your pension fund on your behalf. However, bear in mind that by making a scheme pays election there will be a permanent reduction in the value of your pension benefits in retirement.

If you have any questions about your NHS pension or the scheme pays election, please contact your usual contact at Whitings or call 01284 752313.

Disclaimer - All information in this post was correct at time of writing.