To ask if any NHS staff understand the potential for large tax bills as a result of pay increases due to pension rules?

[NorthernLurker]

So I know this has been in the news a bit re doctors and dentists because they are high earners and both the lifetime cap and effect of annual limits being tapered impact on them but what I didn't know is how it could impact on 'ordinary' staff.

My current understanding (and I'd love to be wrong, please say if I am) is I am in the nhs pension scheme. My limit for contributions or increase in value of the pot each year is 40,000. So I make contributions considerably under that but if I get a pay increase through promotion of say £4000 that increase is multiplied by 16 = an increase in pension pot value of £64,000. This generates a tax liability @20% on £24,000 - £4800 - which I apparently would owe HMRC! I can ask for the pension scheme to pay it (if I realise in time) but if so that will be deducted WITH INTEREST from final benefits.

Now happily for me I can carry forward allowance from the previous three years and in this example that should cover this liability BUT if I get another similar increase next year I would be screwed.

Am I right? How widely is this known? And how can it be right that an increase in pay one year can generate a tax bill greater than the flipping increase! I know the final salary scheme is much envied but there's something really punitive about this.

Sorry sent too early... Your moaning is really quite offensive as millions of low paid workers have had to make a choice between opting out of their (relatively measly) defined contribution employer pension, or cutting back on already tight budgets, as minimum employee rates increased last week.

Compare and contrast

www.mumsnet.com/Talk/am_i_being_unreasonable/3554670-aibu-to-think-my-pension-pot-of-7k-is-totally-pointless

Errrrr moaning? Because everybody loves paying additional tax right?

In the case of medics they have worked and trained for well over a decade to earn a fraction of what their similarly qualified peers in other industries earn. The pension is an element of the compensation they receive. For medics, for nurses and many others it keeps them in the role. The annual allowance has only recently been reduced. This is a new problem and it is impacting on medic retention. As it becomes better understood the impact will doubtless widen.

Step 1 : increase pension at the beginning of the year by CPI (inflation) then multiply by 16

Step 2 : multiply your pension at the end of the year by 16.

Step 3 : deduct the figure in step 1 from the figure in step 2 and this is your annual allowance.

A salary increase of £4,000 is not the right figure to multiply by 16 as only a percentage of this counts towards your pension. (It is only your pension increase which is multiplied by 16 not your salary)

If your pension increases in 1 year by £2,500 then this multiplied by 16 is £40,000 so may have an annual allowance fee payable.

Anyone earning over £100,000pa May have a reduced annual allowance but pension contributions can be offset to a certain extent and the calculation gets quite complicated.

Also, the annual allowance is what you can receive tax relief on. Anyone exceeding their annual allowance will get a tax bill but this is roughly the same amount of tax relief they would have got on their contributions over their annual allowance. So they wouldn't be worse off, they just wouldn't benefit from the tax relief. If they hadn't paid into a pension they would have paid the same amount in tax anyway.

The government (and Jeremy Hunt in particular), has taken pleasure in completely screwing doctors over the last few years. I agree, as a doctor, that no-one earning over £100k is going to get any sympathy from the general public while complaining about having to pay more tax. However the NHS is a monopoly. If you want to train as a doctor in the UK this is your only option, and the government have exploited this to their advantage for years. Well now it’s pay back time. Consultants and their totally screwed junior doctors coming along behind them can effectively hold the government to ransom over this......and judging by the mood in senior medical circles I’m pretty sure they will. It’s the only bargaining tool we’ve had in years. Pretty much ever consultant I know has stopped doing extra work, it will only result in longer waiting lists and even more poorly staffed department. You reap what you sow.

Complaining about exceeding your lifetime or annual pension allowance is a bit like moaning that your diamond slippers are too tight

^^This

Are you close to retirement if you're still in the final salary scheme?

I think there are a lot of rumours and Chinese whispers around all of this unfortunately. Chase de Vere do free consultations (and are approved by the BMA) to go through your own personal circumstances. We had one recently and the advisor was brilliant.

FWIW I’m a pension scheme trustee of a non-NHS scheme and I asked our advisor for advice and he said the NHS scheme was so complicated only specialists should ever advise.

Complaining about exceeding your lifetime or annual pension allowance is a bit like moaning that your diamond slippers are too tight

Not when the bizarre x16 multiplier is the cause of the allowance being exceeded and earning a small amount extra money leaves people worse off by thousands of pounds.

Yes, public sector pensions are good, but hundreds of pounds a month are deducted from the employees salary to pay for it, and many are paid less than equivalent jobs in the private sector. The pension has always been considered part of the package.

How many people making snidey comments about how much better a public sector pension is are paying hundreds of pounds a month into their own pension?

I fully expect a tidal wave of moaning at the end of the month when people with Nest pensions see an increase in their own contributions. It seems that lots of people want a pension but don't want to pay for it.

Yes I’m likely to get stung by this either this year or next. The main upshot is that all of us consultant surgeons in our department have stopped doing extra lists to get waiting times for surgery down and most of us are considering dropping sessions. The trust are having absolute kittens as they get fined for every patient that breaches targets. This could be the end of the NHS as we know it. Due to these bizarre tax rules, for any increase in income between around 104k and 165k I receive no more take home pay...so essentially am working for free. Which clearly I’m not going to do. I’m only 37, with many more years work ahead of me, but it’s looking increasingly likely I will be forced into working part time. Many of my older colleagues are considering early retirement.

People may struggle to feel sorry for those that this affects, but I’m sure will be the first to complain when their cancer surgery is delayed by weeks or they have to wait months longer for their hip replacement. This affects everyone, by virtue of the fact that consultants up and down the country are simply refusing to do the extra work that trusts have come to rely on.

It's insane. Yes consultants get lots of money but anyone would be crazy to work more for no more money... especially as unlike private sector you don't come out of the top of the stupid tax pay band but sit in it forever.

Most consultants have families who they would like to see occasionally - why would you actively give up family time for no additional money- that is not sustainable or good for mental health/burn out!
Crazy system

Disclaimer - not a Dr and my DH is in a similar profession that has less pay and prospects than a human Dr- and I still think it is a ridiculous lack of joined up thinking between pay scales and tax charges!

Me too weasel, I am wondering if my clinical excellence award will now make me worse off...(non pensionable so I don't think so, but might be wrong).

A consultant we know has dropped a day of week of clinics because he worked out he would be paying £35 to HMRC for the privilege of working.

I’m sure he isn’t alone in doing this. It’s a potential nightmare for the NHS

How many people making snidey comments about how much better a public sector pension is are paying hundreds of pounds a month into their own pension?

I’m assuming that was probably directed at me. Well, I pay £800+pm into the local government pension scheme which is topped up by 26% contribution from my employer. A few years ago I exceeded my annual allowance one year due to some quirk, and I still think it’s ridiculous and greedy to complain about being taxed because your tax-free pension allowance is unlimited!

Totally agree it is absolutely ridiculous. Unfortunately doctors have been treated like shit for years by the public and the government and this is just one of the examples. Waiting lists could be a casualty of this but it’s easier to blame those ‘greedy doctors’ than it is to use some joined up thinking .

(I’m not a doctor myself, thank goodness).

@hopefulhalf it may well affect you as will decrease your annual allowance. I suspect far fewer people will be applying for CEA now, as there’s no incentive. Which in turn will lead to less innovation, research, teaching etc in the NHS. It’s so short sighted.

Well this thread has made me realise my DH and I probably need to see a pensions advisor as it all makes no sense to me....

The problem is that even the pensions advisors don’t understand it!

Oh crumbs, I'll just take comfort in the fact that Capita will just lose all my contributions anyway....

It is crazy. I am 43 have been a consultant for (nearly) 4 years and am therefore effectively at the top of the pay grade (£110K bang on this year I think). So in reality going forward I either I drop sessions (do less work) for the same pay or pay the tax office for the previledge of working.

priviledge bloody phone

This is a good blog post explaining things: henrytapper.com/2019/03/06/nhs-pensions-are-damaging-the-nhs-a-doctor-writes/

I have more but it's long. I don't have objection to paying tax. I object to being taxed at effectively 300% when doing even more hours to cover for long term sick colleagues - me paying to work is not acceptable.