I will start this column with the usual caveat: the decision to opt out of the NHS pension scheme should not be taken without specialist independent financial advice. For those who are starting off, joining the NHS pension scheme will still be worthwhile in the majority of cases.
Having said that, when earnings increase, GPs may have to review their position, as the annual allowance – the increase in value of a GP’s pension each year before more income tax is charged – will be lowered for the highest earners from April.
Previously, the threshold was £40,000 for everyone. Now, any GP with taxable income over £110,000 and combined income plus growth in pension over £150,000 will have a reduced annual allowance, on a sliding scale down to £10,000 for highest earners.
What can I do?
If you think you’re in danger of exceeding your annual allowance, you can request a statement from NHS pensions to find out how much your pension is increasing year by year. They will automatically issue a statement if you exceed the annual allowance.
However, these statements can be issued only after the end of the tax year, by which time it will be too late to consider action.
If you are within 10 years of retirement, you could take 24-hour retirement, retiring from all NHS posts, drawing the pension, and then restarting work. You could also stop contributions without drawing the pension until later, but be aware of the loss of life cover and ill health benefits. It is also possible to opt in and out of the scheme each year so you only pay into your pension for part of the year – but again you lose benefits while opting out.
If the annual allowance for tax due is over £2,000, it can be paid through the NHS pension scheme, although it will come out of the pension you receive later.
Another tax hit
Meanwhile, the lifetime allowance – the total you can build up in your pension pot without paying tax – will reduce from £1.25m to £1m. If your funds are already over the £1m point you can apply for your lifetime allowance to be set at the value of your fund at 5 April 2016, up to a maximum of £1.25m. I would advise the same as above.
Luke Bennett is a specialist medical accountant at Francis Clark LLP