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Independents' Day

Government lifts cap on pension scheme payments towards GP annual tax charges

The Government has lifted a cap on the amount the NHS pension scheme can now pay upfront towards a GP’s annual tax charge.

Previously, the NHS Business Services Authority (BSA) only paid a portion of a GP’s annual tax charge related to pension growth, which would then be clawed back from their pension pot over time.

Under the changes, the pension scheme now pays the annual tax charge in full, with the GP paying the money back through their pension pot in the same way as before.

A GP’s annual tax charge is a tax on the pension growth funds left over after the pension allowance has been deducted from the total pension growth.

This comes after the Government implemented changes to the annual pensions allowance in April 2016, meaning that GPs with a gross income in excess of £150,000 from all sources, including pension growth, have their £40,000 allowance ‘tapered’ down.

However, to mitigate skyrocketing tax bills the Government has now lifted the cap on what the NHS pension scheme can initially pay on behalf of the GP through the ‘scheme pays’ arrangement.

Previously, the scheme would only pay the tax on however much pension growth was left over after deducting £40,000.

For example, a GP earning a total of £180,000 per year, including £50,000 in pension growth, will have their pensions allowance reduced to £25,000.

This is will leave an excess growth of £25,000, on which the GP would have to pay £10,000 as an annual tax charge.

The GP can either pay this themselves or opt for the NHS pension scheme to pay it on their behalf and recoup the funds through their pension pot over time. 

Previously, the scheme would have only paid £4,000, leaving the GP to still to pay £6,000.

Now, the pensions scheme will pay all £10,000 and take the funds over time from the GP’s pension.

The BMA’s GP committee pensions lead Dr David Bailey told Pulse that lifting the cap is 'welcomed' but added: 'It's nothing great because we've still got we've still got tapering of the annual allowance tax charge but it is better and it does give people who would have this [tax charge] unexpectedly an alternative of paying the bill without necessarily having to dip into savings to do it.'

But Andrew Pow, director at accounting firm Hall Liddy, told Pulse the changes would benefit GPs as ‘NHS pensions are unable to release the calculations of [pension] growth due to the issues of pension records not being updated quickly enough as information has not been provided in a timely manner from PCSE…

‘At least now a GP who thinks they have an issue can protect themselves from an unknown tax bill… [and] As a result they are less likely to fall foul of submitting incorrect tax returns.’

Health secretary Matt Hancock said in a letter to the BMA today that the Government would address ‘the problem experienced by doctors who are subject to tax charges as a result of the tapering annual allowance, as the NHS pension scheme currently does not offer the “scheme pays” facility for this group.

‘I can confirm that we have asked the Business Services Authority that administers the pension scheme to introduce this facility as soon as possible.’

This comes after Pulse revealed that 3,000 GPs claimed their pension early, in part because of pension tax issues.

Readers' comments (14)

  • so...we are still screwed over..just get to wait for it rather then having it now.
    BMA should hang their heads in shame.

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  • This is a massive raid on NHS pensions and it forcing many people out. Younger doctors will not even be able to join as their salary increases will trigger huge annual pension tax bills. This is a clever game by the Government to force doctors out of the pension scheme. What has changed only means you can opt to destroy your yearly pension income rather than pay the lump sum now.

    It is also likely that in the budget we will see a reduction in the annual allowance, possibly down to 20k.

    Many doctors just don't know about this issue but at the end of this month we will all be receiving annual allowance statements. There will be many who just don't know about this issue and will get a rather large shock!

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  • but does this mean we cant put money away into a private pension because of the cap, or can we still do this as an alternate to NHS pension and still get the tax relief?
    or just pull out entirely, and invest in properties..

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  • I have pulled out. You have to pay tax on the pension money that you do not now have.A double whammy. They are clearly not encouraging people to save for their old age or make work pay. I am not doing any extras too for it to just go to the tax man. Far better to put my feet up after 12h day.

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  • This applies to all pensions so you cannot go to a private pension. The interesting thing is that they have a random number generator to calculate NHS pension growth. However, if your private pension grows by a million pounds this is just deemed as lucky and you don't pay any tax.

    The incentive here is not to take any additional work that you cannot route through a private company. But if you go through a private company, then you cannot take it out as that compounds the problem if you do.

    The whole issue stinks if you ask me..the Government moved to a 2015 scheme- that didnt destroy us enough so they thought up the annual allowance to tax us into submission.

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  • Pull out, unfunded pension so if folks dont contribute the exchequer will be funding the pension liability.For the younger ones leave th poisonous pit Uk asap

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  • can someone explain this in simple terms?

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  • There is absolutely no positive reason to be a medical Dr in the UK at the present time. Watchdoc.

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  • Simple terms. Your NHS pension is growing each year and it grows quite substantially in some cases. You are most at risk if you have taken on extra work or increased your pensionable income. The amount it has grown will be sent to you each year and you will have a separate amount for the 1995 scheme and 2015 scheme. You have an allowance (40K) that if you breach you get taxed badly. However, if you earn too much then they reduce down your annual allowance depending how much you earn. They add your growth to your income in some cases to sting your annual allowance. Basically means a whopping extra tax bill you didn't see coming that will force you out of the pension scheme or require you to dip in and out.

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  • thanks.

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