Nearly two fifths (38%) of NHS staff who exceeded their pension annual allowance in 2018/19 elected for the scheme pays option, more than three times the 11% average seen before the introduction of the tapered annual allowance, but more support is needed, according to Quilter.
Scheme pays allows savers to settle annual allowance tax charges through their pension scheme without needing to find the cash upfront.
Following a letter to the Treasury from Quilter, the 2018/19 NHS scheme pays deadline was extended to 31 March 2021, giving NHS staff more time to apply for the scheme pays option.
While the latest figures show that the number of staff who breached the annual allowance dropped to 7,576 in the 2019/20 tax year from a peak of 24,126 in 2016/17, Quilter attributed it to a lag in reporting and expects this figure to rise significantly once records are updated.
Last week, the NHS Business Services Authority confirmed it would extend the 2019/20 voluntary scheme pays deadline for the NHS Pension Scheme members with an annual allowance charge until 31 March 2022. However, Quilter warns there will be a number of scheme members who may not find out about their liability until after the revised scheme pays deadline.
Graham Crossley, NHS pension specialist at Quilter, says: “After an incredibly difficult year for the NHS there now seems to be light at the end of the tunnel in respect to the pandemic in the UK. However, tax issues related to pensions persist and more still needs to be done to support senior clinicians in respect to their pension tax obligations.
“Significant numbers of doctors are only just finding out that they have annual allowance liabilities for historic tax years due to a lag in reporting. As the NHS Scheme Pays deadline has passed for these tax years, doctors have to pay these liabilities themselves and take on significant debts to do so.”
To date, 2,077 have elected for scheme pays, despite 7,576 exceeding the annual allowance.
Crossley adds: “Despite the deadline for doctors to apply for 19/20 scheme pays having been extended, it is still important that doctors who think they might have exceeded the annual allowance seek financial advice so that the best course of action can be agreed. I am surprised to see only 2000 people having applied for scheme pays at present and expect there to be thousands of staff who would benefit from applying for scheme pays so they can latterly apply for the NHS Annual Allowance compensation scheme.
“An easy fix to avoid this in the future is to enable hardworking medical professionals to make a scheme pays election within a four-year timeframe, thus giving them ample time to find out about any liabilities and organise their finances in a way that means they are not penalised in this way.”