How to deal with NHS pensions savings statements. High earning individuals in the NHS scheme will be receiving their pension savings statements for 2023/24 and 2024/25 tax years.
A fresh set of brown envelopes will have arrived in the post for many NHS medical consultants this week. These will include the pension inputs for both tax years 2023/24 and 2024/25. The 2023/24 figures have been delayed for a year due to the administrative complications caused by the McCloud remedy.
Where individuals are members of both the final salary section and a career average (CARE) sections, they will receive two separate envelopes with two sets of figures. The figures need to be combined and tested against the individual’s annual allowance.
Often the envelopes can fill clients with dread as they will contain news that they have exceeded the annual allowance and there is a tax charge to pay. For the highest earning individuals that are subject to annual allowance tapering, then, unfortunately, this is likely to still be the case. However, for those with taxable earnings below £200k and, so, not subject to taper, there may be some good news as outlined below.
2023/24 tax year
From 2023/24, a new rule was introduced to help high earners in public sector schemes such as the NHS. The rule allows the negative inputs in a final salary section of the scheme to offset the positive inputs in a CARE section.
When calculating the pension input for a defined benefit scheme there is an allowance used which aims to remove the inflationary element in the notional ‘growth’. For tax year 2023/24, HMRC’s pension input calculation will use the inflation figure to September 2022 – 10.1%.
In simple terms, this means that consultants with a pay increase of less than 10.1% in that tax year will have a negative pension input in their final salary section of the scheme. (There is no further accrual in the final salary schemes – benefits only change with salary changes). For most the pay increase was likely to be significantly less than this, meaning the new rule can be used immediately to offset some or all of the positive inputs in the CARE scheme. Note the minimum overall input is still limited to zero – i.e. people can’t carry forward a negative figure.
Example
| 2023/24 Final salary input | – £30,000 | (shown on the statements in brackets) |
| 2023/24 CARE input | £40,000 | |
| Total input for 2023/24 | £10,000 |
Assuming the individual is not tapered, they can carry forward the £50,000 of unused allowance to future years.
Because of the delayed pension savings statements, many will have estimated their pension inputs for tax year 2023/24. Any individuals who have provided an estimate will need to review this and make any adjustments to their 2023/24 tax returns. Any individuals who now have a tax charge, and didn’t declare anything previously, will now need to do so.
2024/25 tax year
There was recently a review of NHS consultant’s pay and pay scales. Many received substantial pay increases, and these are reflected in the 2024/25 inputs. However, the positive news is that the inflation figure used for calculating the 2024/25 inputs, i.e. to September 2023, was still relatively high at 6.7%. This will offset a significant proportion of the ‘growth’ in value.
Even so, those who benefited the most from the review are likely to see pension inputs in excess of £100k. However, as explained above, for many, these may be able to be offset against the carry forward available from 2023/24.
Where the individual’s Threshold Income exceeds £200,000, remember, the full value of the pension input needs to be added to their taxable income to reach the Adjusted Income figure. The large inputs in 2024/25 may lead to significant reductions in the annual allowance.
Excesses
Where there is an excess, individuals have the option to either pay the tax directly to HMRC with their own funds or to elect to use scheme pays.
In either case, individuals must declare the excess in their self-assessment – SA101 Pensions savings tax charges, Box 10. If they are using scheme pays, they also need to complete Box 11 to state how much tax the scheme will be paying.
Where scheme pays is used, the tax charge is applied as a debt against benefits held in the scheme. The debt rolls up with interest, which is currently CPI plus 1.7%*. The debt is then converted into a reduction in benefits when they are taken. As it reduces the level of guaranteed pension for life, careful consideration should be given before making any election.
*This relates to the rules for NHS England. Similar rules apply to the scheme pays rules in other UK countries. NHS Wales, Scotland and Northern Ireland all have separate but very similar NHS pension schemes.