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Considering a break from the NHS pension? Think again

Bob Senior gives three reasons why GPs should think again before having a ‘holiday’ from the superannuation scheme

As the January year-end approaches, many GPs will be questioning whether they should defer (or even stop) their membership of the NHS pension scheme because they have contributed more than the threshold allows. But if they do, they can expect a bigger tax bill. This would be by at least 40% of the contributions they are no longer paying, or possibly 60%. For many GPs, pension contributions take their taxable income below the magic £100,000 level at which the personal tax-free allowance is lost. GPs earning between £100,000 and £120,000 face an effective tax rate of 60%.

The risks of a pension ‘holiday’

There is a group of GPs who are unlikely to breach the annual allowance limit but may exceed the lifetime allowance limit, currently equivalent to an NHS pension of £54,347, before they reach retirement age. Many of these GPs are thinking about taking a pension contribution ‘holiday’. But they should think carefully.

There are two significant changes that could have a negative impact. The first relates to the dynamising uplift on the GP’s earnings in their career so far (the mechanism that revalues the GP’s previous earnings so they reflect their current value). GPs aged 55 and over would lose the 1.5% uplift that is added to the inflationary increase. GPs under 55 would lose both the CPI increase and the extra 1.5%. This might not have too much impact over just one year, but significant losses could mount up for GPs who defer membership for longer.

Also, death in service benefits would change, which for a young GP might approach £200,000. If the GP decided to defer pension contributions this benefit could drop to £40,000.

Scheme changes 

GPs may also lose out under impending changes to the NHS pension scheme, due next April. Although we know what is happening in general terms, there is no guarantee that deferred GPs older than 50 on 1 April 2012 would be allowed to resume the 1995 terms when the new scheme comes in during 2015. At this age, had they continued contributions, they would have the option to stay, rather than move to the new scheme, which is likely to have reduced benefits.

Bob Senior is chair of the Association of Independent Specialist Medical Accountants and head of medical services at Baker Tilly

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Readers' comments (12)

  • Dont understand your logic Bob. If we exceed our AA or/and LTA we can also expect much bigger tax bills. Who knows what the goverment is going to do next? Seems we're screwed either way

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  • where is this figure of 200K & 40K for 'death in service benefit' reduction from Bob?

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  • Took Early Retirement

    By leaving early, at 57.5 I found (by chance really) that I had got to over 98% of my lifetime allowance. Add a small AVC and I will be at 100% so another reason to GET OUT WHILE YOU CAN! How long before the evil vermin in govt decide to tax your lump sum? Once the do, you are STUFFED. FOr how long can you live with the risk?

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  • The NHS pension scheme for GPs is now not fit for purpose,older GPs need to leave the scheme roughly after the age of 48 when the cost benefit is now negative especially after the new annual allowance rules and LTA changes,younger GP partners should leave and put the same amount into a SIPP preferably property based you get to keep the employers pension contribution of 14% to invest as well as your employees contribution,locums should stay in the scheme
    This guy is either an NHS England stooge or incompetent

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  • Let's face it AIMSA are at least 2 years behind what is happening in the real world don't forget this is the organisation that told the Daily Mail GPs earned £250,000 a year not long ago,as for their useless newsletters don't get me started

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  • This article is so short on detail and doesn't compare any of the alternatives that really its a waste of time.

    e.g. DIB benefits. ok a young doc might loose some but for a young doc - 1. they might not need any if they don't have dependents and 2. life insurance is available. the point around the high tax band is valid but then doesn't mention other ways of avoiding it as another contributor has.

    as someone thinking of pulling out - i was hoping for an informative article but alas just some headlines that you can read on the nhs pensions website.

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  • Agree - some might feel this is a crappy article.

    Everyone seems to give a different opinion.

    At 50 I'm coming out at 53 when would have switched to 2015 scheme and defer to 60 and commute whatever I can to lump sum to minimise LTA

    I just hope ******** don't lower the LTA further and also tax the lump sum.

    Anyway you can plan all you like but it all seems to boil down entirely to the complete lottery of whatever fiscal year you retire in as to what you get

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  • I am soon 57.I have been hit by two large Annual Allowance tax charges & need to leave the scheme soon to avoid further big LTA tax charge on retirement. There has been a dearth of good informative articles on the choices GPs can make. This short article hasn't really helped, sorry Bob. Please rectify Pulse!

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  • Obviously a topic which generates a range of views. Given the limited space of the Finance Diary it is unfortunately not possible to comprehensively cover all the points that can come into play in deciding whether or not to stop contibuting to the NHS Pension.

    The article intended to remind readers that there is no "one sized fits all" answer to what GPs should do, nor indeed if they do decide to opt out then at what point they should do that. While there are indeed GPs whose positions are such that opting out makes sense for them there are a variety of factors that others need to be mindful of before making such a decision.

    One posting asked about the difference in the death in service benefit. That arises because the cover for an active member in the 1995 scheme is twice their average pensionable income. Once they stop contributing it changes to three times their accrued pension entitlement. A young, high earning GP might have a significant average pensionable income but with not many years service in practice have a farily low accrued pension.

    The range of comments highlights the need for GPs to take individual advice from an Independent Financial Adviser before taking such an important decision.

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  • Having invested wisely(or so I thought)in FSAVCs and Added Years, I was effectively forced out, aged 60, in Jan 2014 in order to avoid the further reduction in LTA that our "socialist" Chancellor imposed on 1.4.14.Retrospective legislation has thus deprived the NHS (and I am sure there are more like me) of an experienced and still enthusiastic full time GP and CCG Exec member (er.. perhaps there are not too many of those left).
    Should have spent it on fast cars and loose women...

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