QUESTION: I have taken fixed protection (FP) on my NHS pension pot as its value slightly exceeds the £1.5m lifetime allowance (LTA).
To avoid losing FP, I plan to make contributions for several months in years where inflation, as measured by the consumer prices index (CPI), has fallen by more than 1.5% by September since the previous September and my pension input in those years (after the relevant HMRC calculations) is deemed below zero. In years when the CPI rises, or falls, by below 1.5%, I will not contribute. With deferred scheme membership in years of zero contributions, I understand my pension pot will increase only by the previous year's rise in the CPI.
Am I right that, under the NHS Pension Scheme's 2008 Section rules, whenever I restart contributions they will be linked to my previous contributions and the whole pot will be increased by the CPI rise plus 1.5%.
Might HMRC retrospectively deem my contributions during any whole year of deferment to have accrued benefit above the permissible level?
ANSWER: It is theoretically possible to make some contributions after 5 April 2012 while retaining FP provided benefit accrual (BA) does not occur at any point during a tax year. However it is difficult to see how this would be monitored, so there must still be a risk of losing FP. This is due to complexities in calculating GPs' pension benefit: annual NHS pensionable profits/pay is not known for some time after the tax year end and BA is an 'ongoing test'.
If your lump sum benefit rights exceed the permissible percentage, BA will have occurred and FP will be lost immediately.