If you’re still waiting for key documentation relating to your NHS Pension Scheme membership for 2022-23, don’t worry – special arrangements are in place.
Many doctors will have got used to receiving annual allowance statements each year, explaining their position in the NHS Pension Scheme. However, if you’re still waiting for information relating to the 2022-23 tax year, don’t panic – there is a reason why these statements have been delayed and you won’t be put at a disadvantage.
First, a recap. The annual allowance is a cap on the increase in value of your NHS pension and the amount of private pension contributions you are allowed to make each year before tax charges apply. Each year, the NHS pension agencies send out annual allowance statements to members who have gone over this cap because growth in the value of their NHS Pensions has exceeded the allowance (£60,000 since 2023-24 tax year and £40,000 in 2022-23).
Normally, these statements arrive by 6 October, six months after the end of the tax year to which they relate – and in plenty of time for people to file their self-assessment tax returns, which are due in a little over three months later, on 31 January. The only exception is that statements for GPs take longer to prepare, because the NHS pensions agencies must wait for the detail of their certified incomes, which determines their pension growth. GPs’ accountants may therefore have to use estimates when filing tax returns.
However, many annual allowance statements relating to the 2022-23 tax year – which should have been issued by 6 October last year – are still pending. This is because the agencies were given extra time to prepare the statements following issues caused by the landmark McCloud legal judgement.
McCloud explained.
The McCloud judgement, a ruling that changes to public sector pension schemes had breached age discrimination laws, required the NHS Pension Scheme, among others, to implement a complicated remedy. Importantly, scheme members’ service between 1 April 2015 and 1 April 2022, which previously counted towards benefits from the 2015 NHS Pension Scheme, has been rolled back into the legacy 1995/2008 NHS Pension Scheme, which offered slightly different benefits.
As a result, all those affected now need to have annual allowance calculations performed with reference to their membership of the 1995/2008 scheme, rather than the 2015 scheme. These calculations need to be undertaken for the whole of the remedy period between 2015 and 2022.
Inevitably, this has left the NHS pension agencies facing a significant workload, with thousands of calculations to perform for all the members affected by the McCloud ruling. These members are those who were active members of the NHS Pension Scheme on or before 31 March 2012 and who were still serving on or after 1 April 2015. This includes members who are currently active, deferred or retired, and those with a qualifying break in service of less than five years.
Given this backlog, the agencies have been given extra time to prepare annual allowance statements for affected members. They have until 6 October this year to send out such statements for the 2022-23 tax year; in other words, the documentation may arrive up to 12 months later than usual.
Anyone who joined the NHS Pension Scheme on or after 1 April 2012 is not affected by the McCloud judgement. If they needed to be sent an annual allowance statement for 2022-23, they should have received this last year in line with the usual deadlines.
What the delay means for you
The good news for NHS Pension Scheme members affected by annual allowance statement delays is that they will not lose out. They won’t have been able to report their position to HM Revenue & Customs through their self-assessment tax returns for the 2022-23 tax year, which were due in by 31 January 2024, but the requirement to do so has been waived.
Instead, members will be able to report their 2022-23 annual allowance position through a new HMRC digital facility, outside of the usual self-assessment arrangements. You should receive your annual allowance statement for 2022-23 by 6 October this year. Active and deferred members will then have until 31 January 2025 to submit details of their tax charge using the HMRC facility; for all other members, the deadline for reporting is 31 January 2027.
Note that in addition to the 2022-23 annual allowance statement, affected members will also receive an adjusted pension savings statement for the tax years covered by the McCloud remedy. You will also receive this by 6 October 2024.
Importantly, this statement will give you revised details of your “pension input amounts” for the tax years in the remedy period, as well as confirmation of your pension input amounts for the previous three tax years – 2014-15, 2013-14 and 2012-13. The pension input amount tells you about your position in relation to the annual allowance. These details will therefore enable you to use HMRC’s new digital service to:
- reassess your annual allowance charges for the remedy period tax years;
- apply for a refund of any overpayment that it may emerge you made in relation to annual allowance charges for the 2019-20, 2020-21 and 2021-22 tax years;
- claim compensation for any annual allowance charges that you overpaid in the 2015-16, 2016-17 and 2018-19 tax years;
- pay any annual allowance charges that you underpaid for the 2019-20, 2020-21 and 2021-22 tax years. Any additional tax payable for the 2019/20 tax year will be allowable under the annual allowance compensation scheme in England. This scheme will compensate clinicians in retirement if they choose to use the scheme pays mechanism to pay their annual allowance charge for the 2019/20 tax year.
Happily, our analysis shows that most doctors will be due a refund or compensation for overpaid tax, rather than facing a bill for extra tax. However, you must apply for this money – it won’t be paid automatically.
That said, a small minority of doctors, such as those with Mental Health Officer Status, may now need to pay additional tax charges. On the upside, these doctors will also be in line for increased pension benefits.
Members receiving their 2022-23 annual allowance statements later than usual.
For those who want the NHS Pension Scheme to pay their annual allowance charges under the Scheme Pays arrangement, the deadline for electing this option is now 6 July 2025 for active or deferred members, and 6 July 2027 for pensioner members.
Last but not least, you can apply to claim back the costs of professional services or other financial assistance that are due to the discrimination or application of the remedy. For example, these could be the costs incurred where you employed an Independent Financial Adviser (IFA) or accountant for advice about the move to the 2015 Scheme, or if you need advice about the effect of rollback on your tax position once you’ve received your Remedial Pension Savings Statement.
Use a separate Cost Claim Back form for direct financial losses incurred from different providers. For a claim for accountancy services used you need to complete an application via the HMRC Digital Service and this is limited to £1,000 including VAT, per piece of advice. A claim for IFA services to help you make your decision about your choice of pension benefits for the remedy period, is limited to £500 including VAT, per piece of advice.
It’s important to say that individual doctors’ circumstances will inevitably vary, and costs may exceed these limits, however if you are in any doubt we recommend taking advice from a qualified medical accountant and/or a specialist medical independent financial adviser.
The information contained within this article is based on our understanding of legislation, whether proposed or in force, and market practice at the time of writing. Levels, bases and reliefs from taxation may be subject to change.
Financial Conduct Authority does not regulate tax planning.
The above does not constitute individual financial advice.