I spend a fair amount of my time dealing with cases that involve the NHS Pension Scheme, reading around the subject, and even attending meetings with NHS Consultants and GPs, which are always very interesting.
But we are still no closer to establishing the best way to deal with each individual case. Just like the rest of the world saving into pensions, there isn’t a typical consultant or GP – everyone has very different outlooks and lives outside of the NHS.
The one thing I have learnt from my meetings and discussions is that there is a significant amount of confusion within the walls of the NHS. It’s important that conversations take the whole picture into account. For example, I’ve seen cases where only the members’ take-home pay was considered when deciding if they should opt-out of the pension scheme entirely.
To me, this completely missed the point that the NHS Pension Scheme is something that most private-sector workers would give their right arm to be a member of.
In those meetings, I always take my time when explaining the implications of the tapered annual allowance, how to understand if you are likely to be impacted in the future and the importance of good financial advice, including from a good accountant. In addition, I explain how great the NHS Pension Scheme is and what each year of pension earned will become in retirement assuming they remain a member of the scheme.
What many members don’t realise is what they will lose if they become a deferred member. Firstly, death benefits will go from a dependent’s pension based on prospective service to a dependent’s pension based on actual service. This could be a huge drop for many because the high earners we are talking to aren’t just restricted to those near retirement. Secondly, increases in deferment only factor in inflation, whereas the increases for those who remain a member will be based on treasury order plus 1.5% per year.
Private practice
For many the issue isn’t what they earn in the NHS, although it is a contributing factor, it is what they earn outside of the NHS and their other investments.
Looking at these outside earnings and restructuring is an option for some but not all. What we really need to do is educate NHS workers so that we don’t have people turning down essential work just to avoid a tax charge, when there are other options available to them. We also don’t want people unnecessarily leaving the scheme and creating a gap in their pension and death planning.
We do currently have a sticking plaster that means the annual allowance charges should be covered, but the NHS Pension Scheme member does still need to ascertain what their charge is, declare it to HM Revenue & Customs and apply for ‘scheme pays’. None of these are easily done without some external help from an adviser or accountant or both.
What happens in the Budget next month will have a huge impact on the people impacted within the NHS Pension Scheme – I am not in favour of preferential treatment, but this issue is getting so much attention is because the NHS is a huge employer which impacts the rest of the country on a daily basis.
In addition, the lack of flexibility in the scheme has been a hindrance to helping those impacted, which the last round of proposals will rectify. That said, it will just push more decisions back on the individual and/or their adviser, many of which are difficult to decide even with a great understanding of the scheme.
So, where we will be this time next year is anyone’s guess. Higher thresholds will help but won’t solve the fundamental issues of a cliff edge for those that tip over it. Getting rid of taper would be great but wouldn’t solve the government’s problem with tax relief generally.
Currently, I can’t see an answer that will suit everyone, so compromise is likely to be needed. We will just have to wait and see.
Claire Trott is head of pensions strategyat St James’s Place Group