Hospital doctors and GPs in the UK are lobbying the government to amend the pension tax rules as the current system of restricting tax relief on pension contributions means many doctors paying almost all of the extra salary back in tax if they take on additional responsibilities or work additional shifts. This is an issue that doesn’t just affect doctors as it potentially restricts the tax relief available to other individuals with high income.
The NHS Pension Service has alerted members of the NHS Pension Scheme that they could receive a tax bill if their pension savings exceed limits set by HM Revenue and Customs (HMRC). These limits are known as the annual allowance, which is calculated each year, and the lifetime allowance, which is calculated based on overall pension savings.
The normal annual pension allowance is currently £40,000 each tax year and limits the amount of pension contributions which qualify for tax relief. The limit covers the combined contributions paid by the taxpayer and their employer. A tapered annual allowance was introduced in April 2016 with the intention of reducing pension tax relief for high earners. It applies to those with adjusted incomes of over £150,000 and threshold income in excess of £110,000. The rate of reduction in the annual allowance is by £1 for every £2 that the adjusted income exceeds £150,000, up to a maximum reduction of £30,000 at £210,000.
There is one more issue: the word is out there that physicians want pensions and companies will see this an opportunity to make money from our dreams by offering us “pensions.” Calling something a “pension” does not make it so. The fact is that, presently, we cannot get a pension with government contributions and one that is protected from market downturns and will give physicians a steady income in retirement indexed to inflation.
There will be various names of the plans that you will be offered—many will use words that are reassuring like “Group” or “Pension Plan,” to suggest that a robust group savings will protect you against the market downturns. However, these are investments not pensions, since your money will travel through time as your money and yours alone, to grow or diminish with the market. The “group” designation applies only to the group money that benefits these companies. There may be a reduction in fees but you will have to decide if this makes these products worth it for you.