Temporary Pensions Tax Measures for NHS Staff

NHS Scotland Staff

Whilst we await the outcome of the Department of Health and Social Care’s consultation on proposals for senior NHS staff to have more control of their pension growth (as highlighted in our blog NHS Pensions – More Flexibility Required?), the Scottish Government will introduce an interim policy to help incentivise highly experienced staff impacted by the current pension legislation.

From 1 December 2019, NHS staff who can evidence that they are likely to exceed the £40,000 pension Annual Allowance during the 2019/20 tax year, and generate a tax charge as a result, will be able to withdraw from the NHS Pension Scheme. Instead they will receive the employer contributions as a basic pay enhancement.

These payments in lieu of pension contributions will be subject to tax and national insurance, however the temporary policy will provide NHS staff with an alternative option to restricting their hours due to impending tax charges.

NHS England Staff

NHS England have decided to take a slightly different approach, instead committing to pay individuals on retirement an amount equal to any 2019/20 annual allowance tax charge that has been settled through the ‘scheme pays’ facility.

Under the current ‘scheme pays’ rules, the individual’s pension benefits must be reduced where the scheme settles an annual allowance charge. However, this new stance will ensure individuals are fully compensated for the scheme pays reduction and that their pension benefits are not diminished by the 2019/20 charges.

Both policies will run until the end of the current tax year, when the political landscape should be clearer and a formal response to the original consultation is expected.

If you are affected by these changes, or would like further information, please contact Blair Hay (blair.hay@aab.uk) or your usual AAB contact.

Find out more about Blair and the Private Client Tax team.