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Getting a fairer deal on pensions tax

Dentists working under the NHS Pensions Scheme can face large tax charges, due to the complexity of the current system. We are calling for greater flexibility within the NHS Pensions Scheme to ensure dentists get a fairer deal.

What do you need to do?

We are reminding dentists to ensure they check their pensions statements, to help confirm whether or not they have breached the pensions Annual Allowance, and consequently may have a tax charge to pay.

Pensions statements are usually sent out in October, and we know from speaking to dentists that many members are not aware of the information they should be receiving with respect to the Annual Allowance more information is available for BDA members in our advice pages. 


What is the BDA doing?

In November 2019, NHS England has announced that dentists will not be penalised for breaching the pensions Annual Allowance.

This announcement is a stopgap, and we will continue to seek a more definitive solution.  

 

Read our response to the DHSC consultation in November 2019 - we've made the case that all dentists undertaking NHS work should be able to access pensions flexibilities, so they do not face disincentives to treat more patients.


We have been driving some of the key developments within the NHS Pension Schemes to help dentists mitigate against facing a huge tax bill. 

 

We have consistently raised the need for the NHS Pension Schemes to offer members a facility to voluntarily build up a lower level of pension in exchange for lower contributions.

 

What’s the issue? 

For many higher-earners, the current system of taxing pension savings is being seen as providing an incentive to do less work, to seek early retirement or to withdraw from saving for retirement.  

At present, the NHS Pension Schemes offer members a range of options to build up more pension than the standard amount, but no facility to build up a lower NHS Pension; other than for people who decide to periodically opt-in and out of pension saving.

In June 2019, the Department of Health and Social Care (DHSC) announced that they intend to consult on bringing in flexibility under the NHS Pensions Scheme in England and Wales.. However, this flexibility is initially targeted at higher-earning clinicians.

Secretary of State for Health, Matt Hancock made an announcement in  over the amount they can put into their pension pots. 
 
In response we wrote to Mr Hancock, and told him that dentists are also facing the same five-figure pension tax charges as our medical colleagues and that consistency is needed, and fast.   

 

In September 2019, the DHSC launched a new consultation. on three planned key new flexibilities for senior clinicians on taxes on pensions. If implemented, such staff would be able to choose at the start of the tax year how much their pension pot should grow by and adjust their contributions accordingly.

 

We await to see if dentists will be included in any of these proposals, and we remain concerned that by targeting access to flexibility, the DHSC is opening itself up to legal challenges from members who will not be able to access these flexibilities.

 

We continue to campaign for pensions tax reform and ask for a fairer deal for dentistry, no dentist should lose out on their pension simply for working hard to ensure NHS patients have been treated. 

Annual allowance arrangements for England and Wales 2019/20

What is the annual allowance, and why do I need to know

The government wants people to save for their pension. It makes it attractive to people to save for old age by making it tax-free to save for a pension. But there are limits to what is tax-free.

If, over the course of the tax year, the value of your pension exceeds something called the annual allowance (AA), you pay income tax on the difference. For 2019-2020, the annual allowance is £40,000 for most people, but can be lower if your annual income is more than £110,000.

Say, for example, your AA is £40,000. If the value of your pension increases by £40,000 or less in that year, there is no additional tax to pay. But, if the value of your pension increased by £50,000, then you would pay income tax on the extra £10,0000. 

Scheme pays – paying the tax relating to your AA when you retire.

In fact, you could choose not to pay income tax on that excess, but have that tax bill deducted from the value of your pension when you retire; so, you pay the tax bill out of your pension once you have retired. You can do this using Scheme pays.

High earners have been hit with high tax bills, so have been working less
Pension tax rules have, over the last several years, impacted on high earning dentists and in some cases this has resulted in those dentists reducing their commitment to the NHS so that they avoid breaching the AA tax charge. 

The BDA and other unions took this concern to the Department of Health and Social Care and as a result action was taken. NHS England announced that a one-off arrangement for the AA tax charge would apply for the year 2019-2020. The Welsh Government has also announced that they will follow suit.

What the government is doing to help you
Some dentists who are members of the NHS Pension Scheme may face a tax bill because the value of their NHS pension will have breached their AA. They may therefore face a tax bill for breaching their AA. 

The NHS Pension scheme has said that, if you apply, it will pay this tax charge for you for the tax year 19/20. This will have to be disclosed in tax returns submitted by 31 January 2021.

Further information on the arrangement can be found is available from NHS England - The 2019/2020 Pension annual allowance charge compensation policy - "The Policy".

To arrange a ‘Scheme pays’ election you will need to complete a form before 31st July 2021. You may wish to engage the assistance of your accountant to do this.  

Completing the form allows NHS Pensions to pay the charge for you. Opting for ‘Scheme pays’ means you are deferring the payment of the charge until you retire. At that stage the charge will be deducted from your pension benefits.  

For 2019-2020 you are still deferring the charge until retirement but NHS England will ensure that you are fully compensated for the reduction in your pension benefits. This is an important extra benefit for NHS clinicians, but is only available is you elect for the pension scheme to pay the tax charge rather than pay it yourself.

The NHS Business Services Authority will deliver the payments on behalf of NHS England. The arrangement confirms that the benefit promise under the NHS Pension Scheme, is underwritten by the Government. 

The arrangement to be compensated at retirement for GDPs is being managed by Dental Services who will provide the form to apply for compensation on Compass. For salaried dentists both you and your employer will need to complete a form to claim compensation. In both cases you will need to complete the Scheme Pays form before you can proceed with the compensation claim. The claim for compensation will be effective from 1st April 2021, if you retire before that claims will be backdated.  



The above arrangements do not include those clinicians working in Scotland and Northern Ireland. We have written to both the Scottish Government and the Department of Health in Northern Ireland asking them to confirm their arrangements for 19/20.

Although the threshold for the AA will remain at £40k from 20/21 changes to the tapering threshold were announced in the budget earlier this year. Details of these changes can be found on Pensions Tax Changes to income thresholds for calculating the tapered annual allowance from 6 April 2020.

If you have any questions on the above please contact our Pensions advisors on 0207 563 6897. 
 

Keep up to date

Keep up to date on this issue by reading our latest blogs.
 
                                                  Download our Pensions tax FAQ to find out more


Need more help or support? 

BDA Extra and Expert members can benefit from one-to-one advice with our Pensions Team, please get in touch if you’d like to discuss this issue or any other aspect of pensions and their taxation, email advice.enquiries@bda.org or telephone 020 7563 4161/6897.