The sometimes forgotten issue of the financial implications of exceeding your annual allowance within your NHS Pension came up at a recent BDA "Preparing for Retirement" seminar, and it made me wonder how well informed many dentists are about it.
Pensions are never really a subject many want to think about, but not knowing the full state of your affairs, could lead to financial consequences.
Talking to the BDA's Pensions Head, Phil McEvoy in the break at the seminar, we both remarked on the fact that the majority of people we speak to have no idea about the annual allowance - in fact, you could easily exceed the Annual Allowance through your NHS contributions alone.
If you are a high-grossing NHS Dentist, or you have income in excess of £110,000, you may have an issue and not even realise it.
And, if you have exceeded your annual allowance, you will be taxed on the excess.
What is the annual allowance for pensions?
The annual allowance is the amount you can pay into all pensions in a tax year and £40,000 is the current maximum.
However, if you have taxable income of over £110,000 you may have your annual allowance reduced - this is called a tapered annual allowance - and this could see the amount you can pay into your pension reduce to £10,000 per year.
How to find out the figure you need to calculate your annual allowance is not straightforward – it's not simply a case of looking at the contributions you have paid into the NHS pension, but information that you need to get from the NHS Business Services Authority (BSA).
Formerly, the NHS BSA would only send calculations to those dentists who they know have exceeded the £40,000 of contributions, however local NHS BSA are now sending out statements to all practitioners.
The NHS Annual Allowance statements are based on an Annual Allowance of £40,000, and do not take into account Personal Pension contributions or that you may have a Tapered Annual Allowance.
If you have been sent a letter, do have a look at it, and ensure you understand what your situation is.
If you are at all unsure, take a look at the BDA's advice sheet or get in touch with us to help you with independent financial advice.
As we all know, HMRC's philosophy is that it is your responsibility to pay the tax that you owe, ignorance is not a defence - don't get caught out.
Daniel James, Director of Clients Services
Lloyd & Whyte
Lloyd & Whyte (Financial Services) Ltd is authorised and regulated by the Financial Conduct Authority. This article is for informative purposes only and should not be considered financial advice.
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