Discussion in 'Speaker's Corner' started by ver01@, Mar 7, 2019.
If they are retiring early, surely that means their pensions are too generous?
Cutting pensions more, you could work in Government!
Not worked too well so far.
The primary driver of the pension problem in the NHS is the generosity of the NHS pension scheme.
The bigger problem are the tens of thousands of younger NHS workers opting out of the pension all together.
Not sure that holds true with the current pension scheme. Years gone by maybe.
The issue currently is the lifetime allowance kicks in and continuing to contribute is pointless and if you increase your workload you just hit it sooner.
Sorry, I missed your previous post. Yea, been chatting to a GP who recently got hit by this, their tax bill last year was £70k due to pension adjustments
That's not a lot of money for the training and work involved.
Yes, they can earn significantly more but again it's years of training
Well, it does, as the problem is there.
It is a nice problem to have though, amassing the equivalent of a million pound pension, or a £40,000+ annual pension coupled with a £100,000+ lump sum.
Don’t get me wrong, I dislike the lifetime allowance and have campaigned to have it removed. But this is an issue that’s been around for years and others work around it.
The tax over the lifetime allowance is high but it isn’t penal. Contributions attract 40% tax relief for the majority of those with lifetime allowance issues, and the tax charge for pension income over the lifetime allowance is lower at 25%. It would be considered penal for lump sums, as that charge is 55%, but the simple solution for that is not to take that part as a lump sum.
Unlikely. The tax charge for exceeding the lifetime allowance will be taken directly from the pension, in the case of the NHS pension by reducing the accrued benefits. It won’t be an income tax charge.
Perhaps they’ve contributed over their annual allowance? In that case they’re taxed to the point where effectively they give back the tax relief they’ve already benefited from.
Yep I think it was that, it sounded like their accountants hadn't been on the ball as it was a year or two's adjustments included in that. I don't know all the details, was just interested when Minstadave mentioned the issue.
It's a regular topic in consultants meetings and still none of us really understand it properly. I'm safe currently as a new consultant but need to be careful as the years go on.
Surely thats the same as any other well paid job though? You don't really hear about other industries where people are retiring because their pension pot has hit a million quid.
No idea tbh. Everyone I know is in the NHS (sad truth!).
People seem to be either doing the "hokey cokey" dipping in and out every year of the pension scheme or retiring, and then returning but no longer paying in.
I don't really see the problem, if you've capped your lifetime allowance, then surely you'd opt out of pension contributions. Might mean you lose out on the tax relief etc, but seems pretty extreme to essentially just resign.
As I’d made a few comments in response to the statements made about the NHS pension, and there are probably a few gaps in understanding, I thought I’d pull together a brief summary a) as a help to some and b) to back up some of the points I raised. I’ve made the summary specific to a defined benefit pension, as that’s what the various NHS schemes are. Hopefully it won’t derail the thread, and there is a perfectly good pension thread a few posts down if people want to talk specifically about them.
There are a number of limits that apply to pensions that, in very general terms, limit either how much you can pay into a pension each year and how large your pension can grow to.
The annual allowance limits the amount you can contribute each year. Generally, you can’t contribute more than you earn, and the annual allowance is £40,000. This includes any employer contributions. There are some exceptions to this. If you’ve already started to draw on any pension, then a different limit of £4,000 a year applies – this is the money purchase annual allowance. There’s also another exception for high earners where, generally, for anyone earning over £150,000 their normal £40,000 annual allowance is reduced by £1 for every £2 of earnings over £150,000. This will reduce the annual allowance down to £10,000 for someone earning £210,000 and thereafter the annual allowance will not reduce any further. This is a problem for high earners, and is the first of two key reasons why high earning NHS staff are limited into how much they’re allowed to pay into their pensions.
To put the wider impact into perspective, HMRC estimated that just over 300,000 high earning individuals would be impacted by these rules.
The lifetime allowance limits the value that your pension can grow to. It is measured in terms of the overall value of the pension and is currently £1.03 million. The NHS pensions don’t have a ‘value’ as they’re defined benefit schemes, so a calculation applies to work out a notional value. This calculation, in very general terms, is quite simple: 20 times the amount of annual pension that the saver has accrued to date. So, if the employee has accrued a pension at that time worth £25,000 a year, the ‘value’ of the pension is £500,000 – under the lifetime allowance. There are a few complications in the calculation if there’s a lump sum involved (use the value of the annual pension after the lump sum is taken out, make the calculation and add the lump sum to that total to test the grand total against the lifetime allowance).
The NHS pension, like all defined benefit pensions, is deemed generous compared to normal defined contribution pensions because a) there’s little to no risk to the employee and b) the benefits payable are generally higher.
Using the above calculation, in general terms it is pretty simple to see that a pension of a little more than £50,000 will hit the lifetime allowance.
The lifetime allowance is widely considered to be unfair. No similar allowance exists, and it is particularly unfair to defined contribution pensions as the limit can penalise them for good investment performance. No such limit exists for ISAs, for example. Annual allowance limits control the amount of tax relief that the Treasury has to pay, and the cost of taxation benefits of investment funds once invested is small. It isn’t clear exactly what purpose the lifetime allowance had any longer.
The tax charges
If you contribute more than the annual allowance, you’ll not receive pension income tax relief on those excessive contributions. You’ll face a charge that’s calculated by adding your excess contributions to your income for the year which you can ask to be paid from within your pension. This is called ‘scheme pays’. The NHS schemes offer this. But remember – the NHS pensions don’t have a ‘value’ so instead the ‘charge’ is taken by making an adjustment to the level of benefits you’ve accrued by making the excess contribution.
Exceeding the lifetime allowance is a little different. The pension is only tested against the lifetime allowance at the point you begin to draw on it so, technically, there’s no limit on how large your pension can grow to.
Again, in very general terms, a charge of 25% is applied for funds in excess of the lifetime allowance. But remember, the NHS pension doesn’t have a value – it only has a notional ‘value’ that’s used to test whether or not it exceeds the lifetime allowance. So that 25% charge is actually taken from the income. In very simplistic terms, if the pension value up to the lifetime allowance limit is £50,000 a year and there’s another £10,000 a year income accrued, this will be reduced by £2,500 to give a total income of £57,500 instead of £60,000. Income tax is taken from the net pension, i.e. after the lifetime allowance charge has been taken.
So, although there’s a tax charge, it is still quite beneficial for people to continue to accrue benefits in the NHS pension over and above the lifetime allowance.
There’s a different charge applied is the benefits are taken as a lump sum, if the scheme allows. Those excess benefits over the lifetime allowance would be charged at 55%. That’s a very clear charge to prevent people claiming high levels of tax relief on their contributions and then immediately being able to withdraw lump sums free of tax.
I’ve tried to keep it relatively simple, and have made some generalisations to do so.
MPs voted down a pay rise not long ago. Gave themselves one instead.
So we have all these freshly qualified nurses who cannot get jobs because we have nursing shortage problems, the answer to which is to make staff cuts, so we have even fewer nurses... gotcha.
Sounds weird, but that is how it was presented and agreed on Question Time, although they didn't really explain or answer the question but that's pretty much all QT ever is, anyway.
Pretty much the truth at the moment. All trusts are broke, so they don't employ permanent staff and don't replace staff that leave, then panic when no one is at work and pay hand over fist for agency.
not sure that's correct,
(should doctors get paid more) = (do you want higher taxes)
I've seen this bandied around, it's for senior civil servants but I'm lead to believe it's the same for docs:
Which is why there's little point in doing above the minimum as a consultant as take home stays flat.
And with the massively decreased numbers for nursing training this is going to get a lot worse in the coming years as well. I personally also believe that the NHS is severely mis-managed in so many ways.
Separate names with a comma.