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Pension tax charge

Please advise me about the proposal announced in this year's Budget to restrict tax relief on pension contributions for those earning over £150,000 in the current tax year or in the previous two tax years. I think this will catch me as my total taxable earnings in 2007/8 were £193,842. My total NHS pension contribution in 2007/8 was £46,038. It seems that I would be liable to the new 20 per cent tax charge on any additional personal pension contributions in this tax year, but that I will be able to continue to claim full 40 per cent tax relief on my current level of NHS Pension contributions. From 31 December 2009, when I will be 60, I cannot continue to buy added years (currently at 9 per cent), which represents about a third of my current contributions. I do not intend to retire for a few years yet. Would it be worthwhile transferring to the new NHS Pension Scheme (NHSPS) that runs to age 65?

If your added years contract was written to age 60, then your added years contributions will cease at age 60; if it was written to age 65, you can continue to contribute until then.

The option for members of the NHSPS who joined it before 1 April 2008 (the '1995 Scheme Section') to transfer membership to the new NHSPS (the '2008 Scheme Section') is not available yet but is scheduled to be open from early 2010.

Also the details (such as the terms for converting existing membership and the late retirement factors) have not been published yet.

At present, it is impossible to say categorically in what situations it might make financial sense for eligible members to transfer to the new scheme.

Assuming that existing membership/pensionable earnings are converted on a like-for-like basis, provisional estimates suggest that anyone planning to retire before age 64 or 65 would be better off staying in the 1995 Scheme Section.

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