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NHS pensions - Annual allowance compensation scheme 2019/2020

Author: Shirley Whittle FCCA, Lentells Ltd

Published: 08 Jan 2021

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While annual allowance tapering was introduced on 6th April 2016, the full impact began to be felt by clinicians more recently. Many found they had unexpected tax liabilities due to overtime or promotions. This impacted on NHS services and waiting times.

In March 2020, the Chancellor announced that the income threshold and adjusted income would be increased by £90,000 each. As a result, far fewer individuals will be affected by the taper for 2020/21 onwards.

It was recognised that these changes were too late for many individuals who had an annual allowance tax charge for 2019/2020 and it was announced that a compensation scheme would be introduced.

This scheme applies for one year only and relates to a clinician who is a member of the NHS England or Wales pension scheme who has incurred an annual allowance tax charge for 2019/2020. It does not cover non-clinical staff.

Of importance, is that the individual has to elect the pay the tax charge via a scheme pays election. If the individual pays the tax charge personally, they will not be covered by the compensation scheme.

The deadline for submitting a scheme pays application for 2019/2020 is 31 July 2021. If a pension member intends to retire before this date, a scheme pays election should be submitted prior to the approval of the pension.

The actual annual allowance figures for 2019/2020 for many individuals are not likely to be available until May 2021. If actual figures are not available prior to the 31 July 2021 deadline, then estimated figures can be used, and the form updated within the next 4 years once actual figures are available.

The annual allowance tax charge also needs to be reported on the individual’s tax return in the year that it arises. Where the pension scheme is to pay the tax charge this should also be noted on the return.

The deadline for completing the application for the Annual Allowance Charge Compensation Scheme is 31 March 2022. The compensation application cannot be processed until the scheme pays election has been received.

Scheme pays elections 2018/2019

The voluntary scheme pays election deadline for 2018/2019 has been extended to 31 March 2021 due to COVID-19.

Making sure your pension record is up-to-date

Annual allowance statements and total rewards statements cannot be updated if there is missing information.

While the position is improving, there are still issues. These would typically affect GP practitioners who submit Type 1 pension forms and medical practitioners who submit Type 2 pension forms. There can be delays in processing the certificates and many salaried GP’s are unaware that Type 2 forms need to be completed on an annual basis.

Where certificates have been submitted and not processed, this should be taken up with PCSE.

*The views expressed are the author’s and not ICAEW’s.