Developments in pensions affecting senior NHS executives

Andrew Dines is a Director and Certified Financial Planner at AAB Wealth.


Two quite separate 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 £ 1,073,100. Normally, this would be linked to the inflation rate of the Consumer Price Index (CPI) so that it increases every year. This year, the government removed that link, freezing the allocation for the next five years, until 2026.

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 the excess you collect 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 NHS and public sector workers.

Complex pension legislation imposed new regulations on individuals 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 benefits of your savings are calculated differently.

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

The Circuit Court, taking two public sector pension schemes (judges and firefighters) as test cases, said the rules amount to age discrimination and need to be reformed. Named after the judges’ pension plan, it is now the McCloud case.

The government endorsed the ruling which would have affected only the two aforementioned schemes, but decided to apply the spirit of the ruling more broadly and said that all public sector schemes, taken as a whole, 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 monitor the progress of these pension reforms, and even before a possible clarity in two years, we can advise you, at any time, what will be the most likely results.

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.

André Dîne is a director and certified financial planner at AAB Wealth.

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