Last night the UK erupted in applause to collectively honour the hardworking NHS staff who are working tirelessly to fight the current Coronavirus health crisis.
As the volume of overtime undertaken by frontline NHS staff increases exponentially we think it timely to focus our attention to you and consider the pension issues potentially impacting doctors.
NHS retirees returning to service during the Coronavirus outbreak
On Thursday 19 March, the UK’s health secretary, Matt Hancock issued a call to more than 65,000 retired health and social care professionals to return to the NHS to join the fight against COVID-19.In order to prevent post-retirement employment having disadvantageous consequences for the pension income of such individuals, the Government put in place temporary emergency legislation which includes measures to help returning NHS staff receive full pension payments.
In normal times, retired doctors or nurses returning to work could see their NHS pension reduced under a complex process known as ‘abatement’.
The amendments which form part of the Coronoavirus Bill 2019-21 have 3 effects:
- The pension income of special class status holders who return to NHS employment won’t be abated (suspended).Special Class status holders are nurses, physiotherapists, midwives and health visitors in post on or before 6 March 1995 and Mental Health Officers (MHO) with at least 20 years’ MHO experience and in post on/before 6 March 1995.The wider pension abatement rules remain unchanged. In particular this means that individuals who retired “in the interest of efficiency of the service” could still have their pension suspended on return to work.
- The pension income of 1995 Section NHS members who return won’t be suspended if they work more than 16 hours per week in the first calendar month following retirement.
- Members who have flexibly retired using the NHS “draw down” facility will not be required to maintain a reduction in their pensionable pay of a minimum of 10%.
Clinicians and the tapered annual allowance
The above temporary measures follow the latest welcome changes to the tapered annual allowance announced by Chancellor Rishi Sunak at the March 2020 Budget in a bid to retain NHS staff on the frontline and lift all but the highest paid out of the current “taper trap”.
In view of the impact the exceptional amount of additional shift work is having on the threshold income of healthcare professionals right now, it’s worth remembering the interim measures put in place for clinicians who may face an annual allowance tax charge in relation to tax year 2019/ 2020.
- In England & Wales, NHS employers will pay clinicians’ annual allowance charges incurred in 2019/20.This is achieved by the employer making a contractually binding commitment to “fully compensate” the individual for the impact on their retirement income of a “scheme pays” deduction.
- In Scotland, NHS staff have been given the option of taking the value of their employer’s pension contribution as an addition to basic pay.
The government is increasing the point at which the £40,000 annual pension allowance starts to reduce for higher earners by £90,000. The threshold income, which is broadly net income before tax excluding pension contributions, is increasing from £110,000 to £200,000 and the adjusted income, which is broadly net income plus pension accrual, is increasing from £150,000 to £240,000.
At present, all individuals with adjusted incomes above £150,000 have their pensions annual allowance of £40,000 reduced by £1 for every £2 that the adjusted income exceeds £150,000, to a minimum annual allowance of £10,000. This has meant that those earning£210,000 or more could not put in more than £10,000.
From 6 April 2020, the annual allowance will only begin to taper down for individuals who have an adjusted income above £240,000. However, the annual pensions allowance will now taper down further than £10,000 so that those with an adjusted income over £312,000 will only be able to put £4,000 a year into pensions.
Death benefits
Recent social media chatter suggests there’s concern amongst health care professionals who have made taxation-related decisions to opt out of the NHS Pension Scheme, that their loved ones will no longer be entitled to any scheme benefits in the event of their death. This is not the case.
Although the loved ones of individuals who’ve opted out will no longer be entitled to death in service benefits if the deferred member passes away, they remain entitled to death in deferment benefits. These include a lump sum death benefit and both eligible adult survivor’s and eligible children’s pensions.
Further details on calculation of these benefits can be found in the 1995/2008 and 2015 NHS pension guides for England and Wales – as well as the guides for Scotland and Northern Ireland.
Important information
Information is based on our current understanding of taxation legislation and regulations. Any levels and bases of, and reliefs from, taxation are subject to change.
The tax benefits relating to isa investments may not be maintained. Tax rules are complicated, so you should always obtain professional advice.
A pension is a long-term investment.
Pensions are not normally accessible until age 55. Your pension income could also be affected by interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation, which are subject to change in the future.
