Ensuring you have accurate information on the value of your NHS pension will enable you to plan ahead to maximise your benefits and to minimise any extra tax you may be liable for if you exceed the tax-free lifetime annual and allowances.
Here are my ten top NHS pension tips for the next 12 months.
Tip 1 Get pension statement
Request an up to date statement of your accrued NHS Pension Scheme (NHSPS) benefits, along with a breakdown of your NHS pensionable service and pensionable earnings to date.
GPs in Scotland can get this information from the Scottish Public Pensions Agency (SSPA) and those in Northern Ireland, from the HSC Pension Service (HSCPS).
All you need to do is contact your scheme administrator (NHSPS, SSPA or HSCPS) outlining the information you require and providing them with a copy of your personal reference number and/or your national insurance number.
When you get your statement you will be well placed to implement the tips below that apply equally to GPs and practice staff paying into NHS pensions.
Tip 2 Check information is accurate
Is your service and pay information in the statement correct? If there are any issues, it will generally be easier to rectify them sooner (while the data is fresh in your mind) rather than later.
Tip 3 Visit the scheme website
Take time to have a look at your scheme’s website (see below for links) which provides lots of useful information regarding the scheme benefits, rules and options, including most of the issues covered in the following tips.
Tip 4 Estimate your annual contributions
If you and/or your tax advisers have not already done so, you will need to estimate your ‘deemed’ NHSPS annual allowance (AA) contributions value for the 2011/12 tax year and make the appropriate declaration on your 2011/12 self-assessment tax return. (Note that this should have been submitted by 31 January 2012.)
Where the ‘deemed’ AA value for 2011/12 exceeds the AA limit of £50,000, then an AA charge will be payable on the excess at your highest marginal rate of tax (including the 50% band).
However, it is possible to carry forward unused AA (if any) from the previous three tax years, to offset or possibly eliminate entirely any AA charges.
Any other contributions you are making - to a personal pension, for example - will also need to be taken into account for AA calculations and the Chancellor announced in his 2012 Autumn Statement that the AA limit will reduce to £40,000 from April 2014.
Tip 5 Decide how to pay charge if over annual limit
If you seem likely to exceed the AA limit, you will need to decide whether you wish to pay the charge personally or, if the AA charge is £2,000 or more, you can ask your scheme to pay the charge on your behalf (deducting it from your benefits) using the ‘Scheme Pays’ facility’.
Although specific details of the facility were not available at the time of writing, the overall intention is that there should not be any advantage or disadvantage to individuals, whether they pay the tax personally or whether they opt for Scheme Pays.
Tip 6 Calculate benefits value
Estimate the capital value of your NHS scheme benefits (and any other pension benefits you have) to determine whether you are likely to exceed the lifetime allowance (LTA) limit. This is currently set at £1.5 million, but the Chancellor announced in his 2012 Autumn Statement that it will be reduced to £1.25m from April 2014.
Benefits that exceed the LTA at retirement are subject to an LTA charge of 25% where the excess is taken as pension (which is then taxable in the usual way) or 55% where the excess is taken as a lump sum.
Tip 7 Consider buying additional NHS pension
If you seem likely to have sufficient AA and/or LTA scope to do so, you could consider the boosting your NHS benefits by buying additional pension. Scheme members can make single and/or regular contributions to purchase a fixed additional pension of up to £5,000 gross (taxable) a year in today’s terms at either age 60 or 65.
Additional pension purchases are index-linked and it is also possible (at extra cost) to include dependents’ benefits.
Scheme members who are purchasing added years are also eligible to purchase additional pension.
Tip 8 Nominate partner for dependent's benefits
Members who are not married or not in a civil partnership but who have been living together with another person in an exclusive, long-term, financially interdependent relationship for two years or more can nominate their partner to receive NHSPS dependents’ benefits. However the member and their partner must be free to marry or to enter a civil partnership.
Tip 9 Expect higher contribution rates
Be prepared for further increases in personal contribution rates from April 2013. As part of the government’s proposed reforms, it is possible that members earning between £69,932 and £110,273 will see an increase to 12.3% (from a rate of 9.90%) and those earning over £110,273, an increase to 13.30% (from 10.90%).
Tip 10 Safeguard pension protection
Members with enhanced protection (EP) or fixed protection (FP) from HMRC for their pension benefits should make sure that these protections are not inadvertently lost as a result of them being either ‘auto-enrolled’ back into their NHS pension scheme (most applicable to FP) or to another pension scheme they pay into (applicable to both EP and FP).
If you have been auto-enrolled, you will need to opt out within one month of the auto-enrolment date (or of receiving notification, if later). If this condition is met, you will be treated as never having re-joined the NHS or other pension scheme.
- Kevin Quinn is a chartered financial planner at Ramsay Brown Financial Services Limited and Medeconomics’ pensions expert