AAB: Plan Now for Healthy Public Sector Retirement

0

“At AAB Wealth we are monitoring the progress of these pension reforms, and even before any clarity in two years, we can advise you – at any time – what the most likely outcomes will be.”

Two quite distinct developments in pension law will have a major impact on top earners in the NHS, including doctors, surgeons and consultants.

The first is an amendment to the 2021 finance bill affecting the lifetime allowance, which sets a limit on the amount you can save in your retirement, with tax relief, over your lifetime.

The lifetime allowance is currently set at £ 1,073,100. Normally this would be linked to the inflation rate of the Consumer Price Index so that it increases every year. This year, the UK government removed that link, freezing the allocation for the next five years until 2026.

Richard Johnston is a Certified Financial Planner at Anderson Anderson & Brown

This development particularly affects people near the end of their working life, with retirement on a not-so-distant horizon, whose retirement savings risk exceeding the ceiling in recent years.

The problem is that excess savings that exceed the limit results in heavy tax penalties. You will pay 25 percent tax on any excess received as a pension, or 55 percent if you take it as a lump sum. This is designed to recoup the tax relief you receive on those savings.

At Anderson Anderson & Brown Wealth (AAB Wealth), we are already seeing that many healthcare professionals and other professionals are cutting back their hours, or even retiring earlier than they would like, in order to avoid such punitive tax bills. .

We have also followed a second separate issue that blurs the lines around the future of retirement savings for surgeons, doctors, consultants and, indeed, all workers in the NHS and the wider public sector.

Complex pension legislation imposed new regulations on individuals saving in public sector plans, redrawing the thresholds between different age groups and how their retirement savings would be treated.

In the case of the NHS pension, it is divided into three sections, and in each the savings benefits are calculated differently.

This meant that two people born two years apart could receive quite different treatment, depending on their age.

The Court of Appeal’s ruling on two historic labor courts, concerning pensions for judges and firefighters, confirmed that this legislation constituted age discrimination and needed to be reformed. Named after the Judges’ Pension Plan, it is now commonly referred to as the McCloud decision.

The government accepted the judgment, which would have affected only the two regimes mentioned above, but decided to apply the spirit of the judgment more broadly and declared that all public sector plans – in all the domains – would henceforth be reformed.

That’s good news, of course, but it leaves the NHS and other public sector workers ‘blind saving’ as the health service revises its plan to build a new, fairer system.

NHS workers, meanwhile, are in a cloud of confusion as they don’t know what the detailed outcome of this review will be. All they’ve been told is that the NHS is aiming for October 2023 as the date it will provide clarification to its members on their benefits.

At AAB Wealth, we are monitoring the progress of these pension reforms, and even before any clarity comes in two years, we can advise you – at any time – what the most likely outcomes will be.

We are also able to advise you on the effects of the lifetime allowance on your pension and to find ways for you to minimize, if not completely eliminate, any unforeseen tax liability that you may incur.

Richard Johnston is a Certified Financial Planner at Anderson Anderson & Brown

Share.

About Author

Leave A Reply