[UK] Review of the Tapered Annual Allowance for Senior NHS Clinicians

The Tapered Annual Allowance is a complicated calculation.  But, to put it simply, it reduces the £40,000 Annual Allowance for pension saving by £1 for every £2 that an individual’s “adjusted income” goes over £150,000.  With the Tapered Annual Allowance having a minimum value of £10,000 per year, what this means is that anyone with adjusted income of £210,000 or more will see a maximum of £30,000 reduction in their Annual Allowance.

What this has meant is that some senior and higher paid staff have had a reduced pensions Annual Allowance because of the tapered regime that was brought in from 2016.  This may have had the effect that staff were put off of working extra for fear of breaching the adjusted income threshold.  This has been recognised as a particular problem in the NHS.

A July 2019 consultation proposed a “50:50 option” where senior NHS staff would have greater pension’s flexibility that planned to allow clinicians to halve their pension contributions in exchange for halving the rate of pension growth.

But a new prime minister and new government has gone further and suggested that this is replaced with a different plan from 2020/21.  At the start of the tax year, eligible staff in the NHS defined benefit pension scheme would set the exact level of pension accrual in 10% increments.  The example given in the news story on the 7^th of August 2019 is someone who elects 30% contributions for a 30% accrual rate.  This would allow them to take on extra work without breaching the Annual Allowance and facing tax charges.  At the same time, employers may choose to convert the unused pension contribution into the salary.

Global Payroll Association Comment

The Tapered Annual Allowance is ridiculously complicated and a burden for employers and individuals.  We recognise this may be a barrier to NHS staff taking on extra duties thereby impacting the level of care that is provided in the NHS.

Yet the problems caused by the taper are not specific to the NHS alone or even defined contribution pension schemes.  Although the intention is admirable, i.e. easing a barrier to providing health care, we question whether this should be a review of the Tapered Annual Allowance generally and not just for some of the people that are affected by it.  It seems to be an added complication for employers, individuals and pensions scheme administrators.

Look out for the consultation on this when it comes.

The Tapered Annual Allowance is a complicated calculation.  But, to put it simply, it reduces the £40,000 Annual Allowance for pension saving by £1 for every £2 that an individual’s “adjusted income” goes over £150,000.  With the Tapered Annual Allowance having a minimum value of £10,000 per year, what this means is that anyone with adjusted income of £210,000 or more will see a maximum of £30,000 reduction in their Annual Allowance.

What this has meant is that some senior and higher paid staff have had a reduced pensions Annual Allowance because of the tapered regime that was brought in from 2016.  This may have had the effect that staff were put off of working extra for fear of breaching the adjusted income threshold.  This has been recognised as a particular problem in the NHS.

A July 2019 consultation proposed a “50:50 option” where senior NHS staff would have greater pension’s flexibility that planned to allow clinicians to halve their pension contributions in exchange for halving the rate of pension growth.

But a new prime minister and new government has gone further and suggested that this is replaced with a different plan from 2020/21.  At the start of the tax year, eligible staff in the NHS defined benefit pension scheme would set the exact level of pension accrual in 10% increments.  The example given in the news story on the 7^th of August 2019 is someone who elects 30% contributions for a 30% accrual rate.  This would allow them to take on extra work without breaching the Annual Allowance and facing tax charges.  At the same time, employers may choose to convert the unused pension contribution into the salary.

Global Payroll Association Comment

The Tapered Annual Allowance is ridiculously complicated and a burden for employers and individuals.  We recognise this may be a barrier to NHS staff taking on extra duties thereby impacting the level of care that is provided in the NHS.

Yet the problems caused by the taper are not specific to the NHS alone or even defined contribution pension schemes.  Although the intention is admirable, i.e. easing a barrier to providing health care, we question whether this should be a review of the Tapered Annual Allowance generally and not just for some of the people that are affected by it.  It seems to be an added complication for employers, individuals and pensions scheme administrators.

Look out for the consultation on this when it comes.