What you need to know about high inflation and your NHS Pensions
5 August 2022
Recent high levels of inflation may have a significant impact on your pension tax charges in the tax year 2022/23.
NHS Employers have this week published an indicative
Ready Reckoner tool that can help individuals get an estimate of their Pension Growth over the 22/23 tax year, and thereby the likelihood of an Annual Allowance tax charge. It is targeted at healthcare workers in England and Wales, however the calculations and information would appear to apply equally to Scotland and Northern Ireland too.
We have reached out to the Government to outline possible solutions to this problem. We are proposing two remedies which will help avoid further levels of service diminishment, resulting from pensions tax. These changes would make legislation more appropriate for a period of variable inflation and low real earnings growth:
The Finance Act 2004 should be changed to state that the Starting Amount should be adjusted in line with the CPI measure experienced in September during the tax year. So, the April 2022 Opening Amount would be uprated in line with the September 2022 CPI amount. An Example of this is shown in the Appendix to the Annual Allowance advice.
For members with multiple NHS Pensions, Pension Growth should be aggregated across these schemes and not treated separately. This will allow low salary growth to offset against other causes of high Pension Growth, and is not unreasonable for a NHS Pension System consisting of legislatively “connected” Pension Schemes (as set out in Public Service Pensions Act 2013), and from which separate scheme benefits are administered and paid in aggregate.
These changes will not make pension tax charges disappear for everyone, but they will mitigate impacts in periods of variable inflation.
We’ve updated our
advice
and if you have further queries about the Annual Allowance, or our proposals to remedy this situation, please
email Phil McEvoy. Though bear in mind that we can’t provide individual forecasts on pensions, or tax charges; and that we are not permitted to advise you on the individual financial impact of any decisions such as opting out of pension schemes, taking early retirement, or reducing NHS work.
