Changes made to pension legislation over many years and successive governments have changed the rules by which all types of pensions, including the NHS Pension Schemes, operate. These changes have become necessary due to several factors. As an example, the alteration to retirement ages is, in large part, due to increased life expectancy and consequently the higher cost of funding index linked pensions for longer.
Some of these changes mean that extra charges, paid alongside your income tax can become payable by a pension scheme member where that individual is for example a high earner and / or has very high pension benefits. The charges fall under the income tax rules and regulations, they are not optional and if applicable, need to be considered when completing annual self-assessment tax returns.
It is not enough to assume that NHS Pensions will tell you if you must pay pension tax. If you have exceeded the £40,000 annual allowance you will receive a Pensions Savings Statement (PSS) at some point, but these can take many months to come through. And by then, HMRC will have already expected you to notify them of the charge and the related tax, accruing interest on any tax deemed due, even if you are taxed at source – i.e. PAYE.
There are numerous circumstances where you won’t receive a PSS but could be in line for charges, including entitlement to reduced allowances and personal pensions that NHS Pensions are unaware of. This, of course, assumes that your NHS pension record is complete, correct and up to date!
Completing Type 1 and type 2 pension forms and paying NHS pension contributions does not guarantee your pension ‘record’ – the history of pensionable earnings and contributions – is up- to-date and of course if some of these forms are missing then your pensions record will not be updated!
It is better to check the completeness of your pension records now and get warning of any potential annual allowance pension charges so you can minimise any tax. BW medical accountants offer a Pension Management Service which can provide information to help reduce the possibility of a surprise and unwanted tax demand for which provision has not been made. It can also play a part in helping you plan for your retirement and give you the information you need to consider the options open to you.
If you want to learn more, please call our client services team on 0191 500 6930 or email email@example.com